Big Rock Times Corporation (BRT)acquired equipment on January 1,2014,for $300,000.The equipment had an estimated useful life of 10 years and an estimated salvage value of $25,000.On January 1,2017,BRT Corporation revised the total useful life of the equipment to 6 years and the estimated salvage value to be $10,000.Compute the book value of the equipment as of December 31,2017,if BRT Corporation uses straight-line depreciation.

Question

Quizplus · Accepted Answer

Using straight-line depreciation, we can calculate the annual depreciation expense as:

Depreciation per year = (Cost - Salvage value) / Useful life
Depreciation per year = ($300,000 - $25,000) / 10 = $27,500

After revising the total useful life and estimated salvage value on January 1, 2017, the remaining useful life at the beginning of 2017 was 4 years (10 - 3 + 1). The revised annual depreciation expense would be:

Depreciation per year = ($300,000 - $10,000) / 6 = $48,333.33

So the total accumulated depreciation as of December 31, 2017 would be:

Accumulated depreciation = Depreciation per year * number of years
Accumulated depreciation = ($27,500 * 3) + ($48,333.33 * 1) = $151,666.67

The book value of the equipment as of December 31, 2017, would be:

Book value = Cost - Accumulated depreciation - Revised salvage value
Book value = $300,000 - $151,666.67 - $10,000 = $138,333.33 (rounded to nearest thousand)
Therefore, the answer is A) $148,333.

Big Rock Times Corporation (BRT)acquired Equipment on January 1,2014,for $300,000