Leo's Lawncare purchased equipment on January 1. The cost was $15,000, and the equipment had a residual value of $5,000. The equipment was given a useful life of 10 years. After the end of two years, it was determined that the equipment would be obsolete in 5 more years and the residual value would still be $5,000. What will be the depreciation under the straight-line method to the nearest dollar be for the third year?

Question

Quizplus · Accepted Answer

The original depreciation per year is ($15,000 - $5,000) / 10 = $1,000. After 2 years, $2,000 has been depreciated, leaving a book value of $13,000. With a revised useful life of 5 more years and a residual value of $5,000, the new annual depreciation is ($13,000 - $5,000) / 5 = $1,600.

Leo's Lawncare Purchased Equipment on January 1