Nicholson Company purchased equipment on January 1, 2008, for $20,000 with an estimated salvage value of $5,000 and estimated useful life of 8 years. On January 1, 2010, Nicholson decided the equipment will last 12 years from the date of purchase. The salvage value is still estimated at $5,000. Using the straight-line method the new annual depreciation will be:

Question

Quizplus · Accepted Answer

The original depreciation was $1,875 per year (($20,000 - $5,000) / 8 years). After 2 years, $3,750 has been depreciated, leaving a book value of $16,250. With a remaining life of 10 years (12 total - 2 already passed), the new depreciation is ($16,250 - $5,000) / 10 = $1,125 per year.

Nicholson Company Purchased Equipment on January 1, 2008, for $20,000