On July 1,20x1,PRC purchased a delivery truck for $116,000 cash.Its estimated useful life was 7 years with a residual value of $4,000.Straight-line depreciation is used.On January 1,20x4,PRC revised the estimated useful life of the truck to 6 years and projected a residual value of $7,400.The accounting period ends December 31.What amount of depreciation should PRC recognize on the truck at December 31,20x4?

Question

Quizplus · Accepted Answer

Under straight-line depreciation, the annual depreciation expense for the truck is calculated as ($116,000 - $4,000)/7 = $16,000. However, when the estimated useful life and residual value are revised, the depreciation expense for the remaining life of the asset is adjusted accordingly.

Using the revised information, the annual depreciation expense is calculated as ($116,000 - $7,400)/6 = $18,600. Since the revision was made on January 1, 20x4, only half of this amount ($9,300) should be recognized as depreciation for 20x4.

Therefore, the total depreciation expense for 20x4 is $16,000 (original estimate) + $9,300 (revised estimate) = $25,300. However, since only half of the revised estimate is applicable to 20x4, the amount of depreciation that should be recognized by PRC for the year ended December 31, 20x4 is $25,300/2 = $19,600.

On July 1,20x1,PRC Purchased a Delivery Truck for $116,000 Cash