Lauter Tun Corporation acquired equipment on January 1,2012,for $300,000.The equipment had an estimated useful life of 10 years and an estimated salvage value of $25,000.On January 1,2015,Lauter Tun Corporation revised the total useful life of the equipment to 8 years and the estimated salvage value to be $10,000.Compute depreciation expense for the year ending December 31,2015,if Lauter Tun Corporation uses straight-line depreciation.

Question

Quizplus · Accepted Answer

The annual depreciation expense can be calculated using the straight-line method formula:

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

Before the revision:
Depreciation Expense = ($300,000 - $25,000) / 10
Depreciation Expense = $27,500 per year

After the revision:
Depreciation Expense = ($300,000 - $10,000) / 8
Depreciation Expense = $37,500 per year

Since the revision was made on January 1, 2015, the company should only recognize 1/8th of the revised annual depreciation expense for the year ending December 31, 2015:

Depreciation Expense = $37,500 x 1/8
Depreciation Expense = $4,687.50

Therefore, the total depreciation expense for the year ending December 31, 2015, would be:

Total Depreciation Expense = Depreciation Expense Before Revision + Depreciation Expense After Revision (weighted for partial year)
Total Depreciation Expense = ($27,500 x 3/12) + ($4,687.50 x 9/12)
Total Depreciation Expense = $6,875 + $35,156.25
Total Depreciation Expense = $41,031.25

Therefore, the best choice is C) $41,500 since it is the closest to the calculated total depreciation expense.

Lauter Tun Corporation Acquired Equipment on January 1,2012,for $300,000