Benson Supply bought equipment at a cost of $72,000 on January 2, 2008. It originally had an estimated life of ten years and a salvage value of $12,000. Benson uses the straight-line depreciation method. On December 31, 2012, Benson decided the useful life likely would end on December 31, 2013, with a salvage value of $6,000. The depreciation expense recorded on December 31, 2012, should be:

Question

Quizplus · Accepted Answer

To calculate the depreciation expense for 2012, we need to find the asset's book value as of December 31, 2012, and subtract it from the original cost.

The asset was purchased for $72,000, and we know it has an estimated salvage value of $6,000 at the end of its useful life. Over the original 10-year life, the asset would have depreciated by ($72,000 - $12,000) / 10 = $6,000 each year.

From January 2, 2008 (the purchase date) to December 31, 2012 (the end of the fifth year), the asset would have depreciated by a total of 5 x $6,000 = $30,000.

As of December 31, 2012, the asset would have a remaining useful life of only one year, and a book value of $36,000 ($72,000 - $30,000 - $6,000).

If Benson now expects the asset to have a salvage value of only $6,000 at the end of its life, the total depreciation over the entire 6-year life (from 2008 to 2013) would be ($72,000 - $6,000) / 6 = $11,000 per year.

The depreciation expense for 2012 would then be the difference between the asset's book value as of December 31, 2012 ($36,000) and its expected book value at the end of 2013 ($6,000), or $30,000.

Therefore, the correct answer is B) $21,000.

Benson Supply Bought Equipment at a Cost of $72,000 on January