Marker Steel purchased a machine on January 1, 20X1, at a cost of $380,000 with an estimated residual value of $30,000 at the end of its estimated useful life of eight years. On January 1, 20X3, Proctor Paper estimates that the machine only has a remaining life of ﬁve years and a residual value of $20,000. Proctor Paper uses straight-line amortization. Depreciation expense for 20X3 would be:

Question

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The book value at the beginning of 20X3 is $332,500 ($380,000 - ($350,000/8)*2). The new depreciation base is $312,500 ($332,500 - $20,000 residual value). Dividing by the new remaining life of 5 years gives a depreciation expense of $54,500 for 20X3.

Marker Steel Purchased a Machine on January 1, 20X1, at a Cost