212. Santayana Company purchased a machine on January 1, 2013, for $60,000 with an estimated salvage value of $15,000 and an estimated useful life of 8 years. On January 1, 2015, Santayana decides the machine will last 12 years from the date of purchase. The salvage value is still estimated at $15,000. Using the straight-line method, the new annual depreciation will be

Question

Quizplus · Accepted Answer

To calculate the new annual depreciation, we need to first calculate the original depreciable cost of the machine:
Depreciable cost = Cost - Salvage value
Depreciable cost = $60,000 - $15,000
Depreciable cost = $45,000

The original annual depreciation, using straight-line method, would be:
Annual depreciation = Depreciable cost / Useful life
Annual depreciation = $45,000 / 8
Annual depreciation = $5,625

Since the useful life has now been extended to 12 years, we need to recalculate the annual depreciation:
Annual depreciation = Depreciable cost / Useful life
Annual depreciation = $45,000 / 12
Annual depreciation = $3,750

Therefore, the new annual depreciation will be $3,750. The correct answer is option B.