Rollins Company purchased a depreciable asset for $300,000 on April 1, 2008.The estimated residual value is $30,000, and the estimated total useful life is 5 years.The straight-line method is used for depreciation.What is the balance in accumulated depreciation on May 1, 2011 when the asset is sold?

Question

Quizplus · Accepted Answer

Annual depreciation = (Cost - Residual value)/Useful life
Annual depreciation = ($300,000 - $30,000)/5 = $54,000
Accumulated depreciation as of May 1, 2011 (3 years of depreciation) = $54,000 x 3 = $162,000
When the asset is sold, there will be an additional depreciation for the period from May 1, 2011 to the sale date. Let's assume the asset is sold on December 31, 2011. Then, the additional depreciation for that period would be:
Additional depreciation = (Cost - Accumulated depreciation as of May 1, 2011 - Residual value)/Remaining useful life
Additional depreciation = ($300,000 - $162,000 - $30,000)/2 = $54,000
Total accumulated depreciation as of December 31, 2011 (when the asset is sold) = $162,000 + $54,000 = $216,000
Therefore, the balance in accumulated depreciation on May 1, 2011 is $162,000. The correct answer choice is D.

Rollins Company Purchased a Depreciable Asset for $300,000 on April