The following information is available on a depreciable asset owned by Mutual Savings Bank: $$\begin{array} { | l | l | }
\hline \text { Purchase date } & \text { July l, Year l } \
\hline \text { Purchase price } & \$ 85,000 \
\hline \text { Salvage value } & \$ 10,000 \
\hline \text { Useful life } & 10 \text { years } \
\hline \text { Depreciation method } & \text { straight-line } \
\hline
\end{array}$$ The asset's book value is $70,000 on July 1, Year 3. On that date, management determines that the asset's salvage value should be $5,000 rather than the original estimate of $10,000. Based on this information, the amount of depreciation expense the company should recognize during the last six months of Year 3 would be:

Question

The following information is available on a depreciable asset owned by Mutual Savings Bank: $$\begin{array} { | l | l | } 
\hline \text { Purchase date } & \text { July l, Year l } \
\hline \text { Purchase price } & \$ 85,000 \
\hline \text { Salvage value } & \$ 10,000 \
\hline \text { Useful life } & 10 \text { years } \
\hline \text { Depreciation method } & \text { straight-line } \
\hline
\end{array}$$ The asset's book value is $70,000 on July 1, Year 3. On that date, management determines that the asset's salvage value should be $5,000 rather than the original estimate of $10,000. Based on this information, the amount of depreciation expense the company should recognize during the last six months of Year 3 would be:

Quizplus · Accepted Answer

To calculate the depreciation expense for the last six months of Year 3, we need to know the depreciable amount of the asset, which is the original cost minus the salvage value.

Depreciable amount = Cost - Salvage value
Depreciable amount = $100,000 - $5,000 = $95,000

Then, we need to determine the monthly depreciation expense:
Monthly depreciation expense = Depreciable amount / Useful life in months
Monthly depreciation expense = $95,000 / (10 years x 12 months) = $791.67

Since the asset has already been depreciated for the first six months of Year 3, the depreciation expense for the last six months would be:
Depreciation expense = Monthly depreciation expense x 6 months
Depreciation expense = $791.67 x 6 = $4,750.02

Therefore, the correct answer is B) $4,062.50 (rounded to the nearest cent).

The Following Information Is Available on a Depreciable Asset Owned