Mobic Inc. acquired some manufacturing equipment in January 2015 for $400,000 and depreciated it $40,000 each year for three years on a straight-line basis. During 2018, the manufacturer announced a new technology for this type of equipment that will make the old models obsolete by the end of 2021. As a result, Mobic will plan to replace the equipment at that time, effectively reducing the asset's life from ten to seven years. In its financial statements for 2018, Mobic should:
A) Charge $280,000 in depreciation expense.
B) Report the book value of the equipment in its December 31,2018 balance sheet at $210,000.
C) Make an adjustment to retained earnings for the error in measuring depreciation during 2015-2017.
D) None of these answer choices are correct.

Question

Quizplus · Accepted Answer

The computation is as follows: Book value at 1/1/2018 = $400,000 (3 × $40,000) = $280,000 Prospective change in depreciation estimate for four remaining years is $280,000/4 = $70,000 per year.

Mobic Inc Acquired Some Manufacturing Equipment in January 2015 for $400,000