Margaret Company purchased equipment on January 1, 2014, for $500,000. At the date of acquisition, the equipment had an estimated useful life of eight years with a $50,000 salvage value, and it was depreciated using the straight-line method. On January 1, 2019, based on updated information, Margaret decided that the equipment had a total estimated life of ten years and no salvage value. What is the amount of depreciation expense on the equipment in 2019?

Question

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The equipment was initially depreciated at $56,250 per year (($500,000 - $50,000) / 8 years). By the end of 2018, 5 years of depreciation had been recorded, totaling $281,250. The book value at the start of 2019 is $218,750 ($500,000 - $281,250). With a revised useful life of 10 years and no salvage value, the remaining book value is depreciated over the remaining 5 years (2019-2023), resulting in an annual depreciation expense of $43,750 ($218,750 / 5 years).

Margaret Company Purchased Equipment on January 1, 2014, for $500,000