Able Towing Company purchased a tow truck for $180,000 on January 1, 2020.It was originally depreciated on a straight-line basis over 10 years with an assumed salvage value of $36,000.On December 31, 2022, before adjusting entries had been made, the company decided to change the remaining estimated life to four years (including 2022) and the salvage value to $5,000.What was the depreciation expense for 2022?

Question

Quizplus · Accepted Answer

Straight-line depreciation is calculated by taking the cost of the asset, subtracting the estimated salvage value, and dividing by the estimated useful life.

Under the original depreciation schedule, the annual depreciation expense would have been:

($180,000 - $36,000) / 10 years = $14,400 per year

However, the company decided to change the remaining estimated life to four years and the salvage value to $5,000. To calculate the new annual depreciation expense, we use the following formula:

($180,000 - $5,000) / 4 years = $43,750 per year

Since the adjustment was made on December 31, 2022, the depreciation expense for 2022 is calculated based on the original depreciation schedule for January 1, 2022, to December 31, 2022 (12 months). This would be:

($180,000 - $36,000) / 10 years x 12/12 months = $14,400 for 2022.

Therefore, the depreciation expense for 2022 is $14,400.

Able Towing Company Purchased a Tow Truck for $180,000 on January