Claxton, Inc. purchased a van on January 1, 2018, for $800,000. Estimated life of the van was five years, and its estimated residual value was $98,000. Claxton uses the straight-line method of depreciation. At the beginning of 2020, the company revised the total estimated life of the asset from five years to four years. The estimated residual value remained the same as estimated earlier. Calculate the depreciation expense for 2020.

Question

Quizplus · Accepted Answer

Under the straight-line method, the annual depreciation expense is calculated as (cost - residual value) / estimated life.

Therefore, the annual depreciation expense before the revision was ($800,000 - $98,000) / 5 = $140,400.

After the revision, the remaining estimated life of the van is 2 years (4 years total life - 2 years already passed).

Thus, the revised annual depreciation expense for 2020 is ($800,000 - $98,000) / 2 = $351,000.

However, we need to account for the depreciation expense that has already been recognized in the first two years.

The accumulated depreciation after two years is ($140,400 x 2) = $280,800.

The remaining depreciable amount is ($800,000 - $98,000 - $280,800) = $421,200.

Therefore, the depreciation expense for 2020 is ($421,200 / 2) = $210,600.

Thus, the correct answer is B.