Marjorie Corporation acquired a building on January 1,2015,for $500,000.The building had an estimated useful life of 20 years and an estimated salvage value of $25,000.On January 1,2017,Marjorie Corporation determined that the building could only be used for another 10 years and there would be no salvage value.Compute depreciation expense for the year ending December 31,2017,if Marjorie Corporation uses straight-line depreciation.

Question

Quizplus · Accepted Answer

To calculate depreciation expense using straight-line method, we need to first calculate the depreciable base:

Depreciable base = Cost of the asset - Salvage value
                  = $500,000 - $25,000
                  = $475,000

Now we can calculate the annual depreciation expense:

Annual Depreciation = Depreciable base / Estimated useful life

For the first two years, the estimated useful life was 20 years. So, the annual depreciation would be:

Annual Depreciation = $475,000 / 20
                            = $23,750

However, from the third year, the remaining estimated useful life is only 10 years. So, the annual depreciation for the year ending December 31, 2017 would be:

Annual Depreciation = $475,000 / 10
                            = $47,500

Therefore, the correct answer is C) $45,250.

Marjorie Corporation Acquired a Building on January 1,2015,for $500,000