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Farmer Company purchased equipment on January 1,2015 for $82,000.The machines are estimated to have a 5-year life and a salvage value of $4,000.The company uses the straight-line depreciation method.
-If the original expected life remained the same (i.e. ,5-years),but at the beginning of 2018,the salvage value was revised to $8,000,the annual depreciation expense for each of the remaining years would be:
A)$5,440.
B)$27,200.
C)$13,600.
D)$14,800.

Question

Quizplus · Accepted Answer

The annual depreciation expense using the straight-line method can be calculated as follows:

Depreciation Expense = (Cost - Salvage value) / Useful life

Original depreciation expense = ($82,000 - $4,000) / 5 years = $15,600 per year

If the salvage value is revised to $8,000, the new annual depreciation expense would be:

New depreciation Expense = ($82,000 - $8,000) / 5 years = $14,800 per year

However, since the equipment has already been used for three years, the remaining useful life is only 2 more years. Therefore, the annual depreciation expense for each of the remaining years would be:

Annual depreciation expense for each remaining year = $14,800 / 2 = $7,400

Therefore, the correct answer is C) $13,600 ($7,400 x 2).

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