Don's Copy Shop bought equipment for $120,000 on January 1, 2013. Don estimated the useful life to be 3 years with no residual value, and the straight-line method of depreciation will be used. On January 1, 2014, Don decides that the business will use the equipment for a total of 5 years. What is the revised depreciation expense for 2014?

Question

Quizplus · Accepted Answer

Since the equipment was estimated to have a useful life of 3 years with no residual value, the annual straight-line depreciation expense would be $40,000 ($120,000/3 years). However, since Don revised its useful life to a total of 5 years, the annual depreciation expense will be $24,000 ($120,000/5 years).

The revised depreciation expense for 2014 would be calculated as follows:

($120,000 - $0) / 5 years = $24,000 per year

Since the equipment was already used for one year, the revised depreciation expense for the second year (2014) would be $24,000. Therefore, the best choice is C.

Don's Copy Shop Bought Equipment for $120,000 on January 1