Mouse Corporation acquired a building on January 1, 2010, for $500,000. The building had an estimated useful life of 20 years and an estimated salvage value of $25,000. On January 1, 2013, Mouse 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, 2013, if Mouse Corporation uses straight-line depreciation.
A) $16,667
B) $40,000
C) $42,875
D) $50,000

Question

Quizplus · Accepted Answer

The revised depreciation expense is calculated by taking the remaining book value of the building as of January 1, 2013, and dividing it by the new remaining useful life. The book value at that date is $425,000 ($500,000 - 3 years of depreciation at $23,750 per year). Dividing $425,000 by the new useful life of 10 years gives $42,500 per year.

Mouse Corporation Acquired a Building on January 1, 2010, for $500,000