A company purchases for $24,000 an asset that has a useful life of six years and no salvage value.After two years,the company spends $4,000 for a major overhaul that will extend the machine's useful life four years beyond the original six.Assuming straight-line depreciation,how much depreciation should be taken in year 3?
A) $2,800
B) $2,500
C) $2,000
D) $4,000

Question

Quizplus · Accepted Answer

The total depreciable cost of the asset is $24,000 since there is no salvage value. Using straight-line depreciation, the annual depreciation is calculated by dividing the total depreciable cost by the useful life, which is 6 + 4 = 10 years after the major overhaul. Therefore, the annual depreciation is $24,000 / 10 = $2,400 per year. 
For year 3, the asset has been in use for a total of 2 + 1 = 3 years. Therefore, the accumulated depreciation is 3 x $2,400 = $7,200. The depreciation expense for year 3 is calculated as the difference between the total annual depreciation and the accumulated depreciation to date, which is $2,400 - ($7,200 - $2,400) = $2,500. 
Hence the answer is (B) $2,500.

A Company Purchases for $24,000 an Asset That Has a Useful