Angst Company purchased equipment in January of 2004 for $200,000. The equipment was being depreciated on the straight-line method over an estimated useful life of 20 years, with no salvage value. At the beginning of 2014, when the equipment had been in use for 10 years, the company paid $25,000 to overhaul the equipment. As a result of this improvement, the company estimated that the useful life of the equipment would be extended an additional 5 years. What should be the depreciation expense recorded for this equipment in 2014?

Question

Quizplus · Accepted Answer

The total cost of the equipment is still $200,000 as the overhaul cost does not increase the cost of the equipment but only extends its useful life. The equipment has now been in use for 10 + 5 = 15 years, leaving a remaining useful life of 20 - 15 = 5 years. Therefore, the annual depreciation expense would be $200,000 / 20 = $10,000. However, since the equipment has been in use for only half of the year after the overhaul, the depreciation expense for 2014 would be $10,000 / 2 = $5,000.

Angst Company Purchased Equipment in January of 2004 for $200,000