Paul's Lodging Corporation purchased equipment on January 1, 2006 for $180,000. The equipment had an estimated useful life of 10 years and an estimated salvage value of $30,000. After using the equipment for 3 years, the company determined that the equipment could be used for an additional 9 years and still have a salvage value. Assuming Paul's Lodging Corporation uses straight- line depreciation, compute depreciation expense for the year ending December 31, 2009.

Question

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Depreciation expense for the year ending December 31, 2009 is $15,000. The equipment was purchased on January 1, 2006 for $180,000 and has an estimated useful life of 10 years and an estimated salvage value of $30,000. After using the equipment for 3 years, the company determined that the equipment could be used for an additional 9 years and still have a salvage value. Therefore, the new estimated useful life of the equipment is 12 years. The annual depreciation expense is calculated as follows: ($180,000 - $30,000) / 12 = $15,000.

Paul's Lodging Corporation Purchased Equipment on January 1, 2006 for $180,000