Farmer Company purchased equipment on January 1, Year 1 for $76,000. The equipment is estimated to have a 5-year life and a salvage value of $9,000. The company uses the straight-line depreciation method.At the beginning of Year 4, Farmer revised the expected life to eight years. The annual amount of depreciation expense for each of the remaining years would be:

Question

Quizplus · Accepted Answer

The initial depreciation expense per year is calculated based on the original cost, salvage value, and useful life: ($76,000 - $9,000) / 5 = $13,400 per year for the first 3 years. By the beginning of Year 4, the accumulated depreciation is $13,400 * 3 = $40,200. The book value at the beginning of Year 4 is $76,000 - $40,200 = $35,800. With the revised life of 8 years total and 3 years already passed, there are 5 years remaining. The revised annual depreciation is ($35,800 - $9,000) / 5 = $5,360.

Farmer Company Purchased Equipment on January 1, Year 1 for $76,000