Fellingham Corporation purchased equipment on January 1, 2016, for $200,000. The company estimated the equipment would have a useful life of 10 years with a $20,000 residual value. Fellingham uses the straight-line depreciation method. Early in 2018, Fellingham reassessed the equipment's condition and determined that its total useful life would be only six years in total and that it would have no salvage value. How much would Fellingham report as depreciation on this equipment for 2018?

Question

Quizplus · Accepted Answer

This is a change in estimate, so the remaining deprecation will be spread over the remaining useful life.
Accumulated depreciation at 12/31/2017 = 2 × [($200,000 - 20,000) ÷ 10] = $36,000
Book value at 12/31/2017 = $200,000 - 36,000 = $164,000. The revised life is six years and two have passed, leaving four remaining years.
Annual depreciation after change in estimate = $164,000 ÷ 4 = $41,000

Fellingham Corporation Purchased Equipment on January 1, 2016, for $200,000