Lorenzo Corporation purchased equipment on January 1,2015 for $500,000.The equipment had an estimated useful life of 5 years and an estimated salvage value of $50,000.After using the equipment for 2 years,the company determined that the equipment could be used for an additional 6 years and have a salvage value of $9,000.Assuming Lorenzo Corporation uses straight-line depreciation,compute depreciation expense for the year ending December 31,2017.

Question

Quizplus · Accepted Answer

The annual depreciation expense can be calculated using the formula:

Annual Depreciation Expense = (Cost of Asset - Salvage Value) / Useful Life

For the first 2 years, the depreciation expense would have been:

Depreciation Expense = ($500,000 - $50,000) / 5 years = $90,000 per year

However, since the company now believes that the equipment has a useful life of 8 years (2 years already passed plus an additional 6 years) and a salvage value of $9,000, we can calculate the remaining depreciation expense as follows:

Remaining Depreciation Expense = ($500,000 - $9,000) / 8 years = $61,125 per year

Therefore, the total depreciation expense for the year ending December 31, 2017 would be:

Depreciation Expense = $90,000 (for the first 2 years) + $61,125 = $151,125

Dividing this by 3 to get the annual depreciation expense for 2017 gives:

Depreciation Expense for 2017 = $151,125 / 3 = $51,833

Therefore, the correct answer is C) $51,833.

Lorenzo Corporation Purchased Equipment on January 1,2015 for $500,000