Able Company bought a machine on January 1,2008 for $80,000.At the time the machine was purchased it was estimated to have an 8-year useful life and a $4,000 salvage value.Able uses straight-line depreciation.During 2014,before the adjusting entry for depreciation was made,Able revised the estimated useful life of the machine to a total of ten years,with an estimated salvage value of $0.How much depreciation expense should the company report for the year ended December 31,2014?

Question

Quizplus · Accepted Answer

For the years 2008 through 2013, Able would have depreciated the machine over its originally estimated useful life of 8 years with a salvage value of $4,000, resulting in annual depreciation of ($80,000 - $4,000) / 8 = $9,500. By the end of 2013, total depreciation would be $9,500 * 6 = $57,000. The book value at the beginning of 2014 would be $80,000 - $57,000 = $23,000. With the revision in 2014 to a total useful life of 10 years and a salvage value of $0, the remaining book value of $23,000 needs to be spread over the remaining 4 years (2014 through 2017), resulting in annual depreciation of $23,000 / 4 = $5,750.

Able Company Bought a Machine on January 1,2008 for $80,000