Horizons,Inc.purchased a machine 3 years ago at a price of $64,500.At that time,useful life was estimated at 12 years with a $6,900 salvage value,and straight-line depreciation was used.After recording depreciation for the 3rd year,Horizons decided that for future years it would revise its original estimates from 12 to 8 years and from $6,900 to $5,500.The depreciation expense to be recorded in year 4 of the machine's life is:

Question

Quizplus · Accepted Answer

The original depreciation per year is calculated based on the original cost minus the salvage value, divided by the useful life: ($64,500 - $6,900) / 12 = $4,800 per year for the first 3 years, totaling $14,400. After 3 years, the book value is $64,500 - $14,400 = $50,100. With the revised estimate, the remaining life is 5 years (8 total minus 3 used), and the new salvage value is $5,500. The new annual depreciation is ($50,100 - $5,500) / 5 = $8,920.