On January 1, 2012, Lake Co. purchased a machine for $1,320,000 and depreciated it by the straight-line method using an estimated useful life of eight years with no salvage value. On January 1, 2015, Lake determined that the machine had a useful life of six years from the date of acquisition and will have a salvage value of $120,000. An accounting change was made in 2015 to reflect these additional data. The accumulated depreciation for this machine should have a balance at December 31, 2015 of
A) $912,500.
B) $770,000.
C) $800,000.
D) $880,000.

Question

Quizplus · Accepted Answer

The correct answer is A.The accumulated depreciation for this machine should have a balance at December 31, 2015 of $912,500.The machine was purchased on January 1, 2012, for $1,320,000 and depreciated by the straight-line method using an estimated useful life of eight years with no salvage value. This means that the annual depreciation expense is $1,320,000 / 8 = $165,000.On January 1, 2015, Lake determined that the machine had a useful life of six years from the date of acquisition and will have a salvage value of $120,000. This means that the revised annual depreciation expense is ($1,320,000 - $120,000) / 6 = $200,000.The accumulated depreciation for this machine at December 31, 2015, is $165,000 x 3 + $200,000 x 1 = $912,500.