Advanced Systems,Inc.purchased a machine 4 years ago at a price of $82,800.At that time,useful life was estimated at 10 years with a $13,500 salvage value,and straight-line depreciation was used.After recording depreciation for the 4th year,Advanced decided that for future years it would revise its original estimates from 10 to 14 years and from $13,500 to $8,500.The depreciation expense to be recorded in year 5 of the machine's life is:
A)$4,658
B)$4,968
C)$5,508
D)$6,930

Question

Quizplus · Accepted Answer

The original annual depreciation was ($82,800 - $13,500) / 10 = $6,930. After 4 years, accumulated depreciation is 4 * $6,930 = $27,720. The book value at the end of year 4 is $82,800 - $27,720 = $55,080. With the revised estimates, the remaining life is 10 years (14 total - 4 used), and the new salvage value is $8,500. The new annual depreciation is ($55,080 - $8,500) / 10 = $4,658.