Wu's Copy Shop bought equipment for $16,000 on January 1, 2014. Wu estimated the useful life to be 4 years with no residual value, and the straight-line method of depreciation will be used. On December 31, 2015, prior to recording depreciation for that year, Wu decides that the business will use the equipment for a total of 5 years. What is the depreciation expense for 2015?

Question

Quizplus · Accepted Answer

The original depreciation per year is $16,000 / 4 = $4,000. By the end of 2014, $4,000 would have been depreciated. When Wu revises the useful life to 5 years in total at the end of 2015, there are 3 years left (2016, 2017, and 2018). The remaining book value at the end of 2014 is $16,000 - $4,000 = $12,000. The revised annual depreciation is $12,000 / 3 = $4,000. However, for 2015, the depreciation expense is still based on the original estimate, which is $4,000, not $3,000. My previous explanation contained an error in interpreting the adjustment's timing. The correct depreciation expense for 2015, considering the adjustment was made at the end of 2015 and not affecting 2015's depreciation calculation, remains as initially calculated before the adjustment, which is $4,000.

Wu's Copy Shop Bought Equipment for $16,000 on January 1