A company purchases for $48,000 an asset that has a useful life of six years and no salvage value.After two years,the company spends $8,000 for a major overhaul that will extend the machine's useful life four years beyond the original six.Assuming straight-line depreciation,how much depreciation should be taken in year 3?
A)$4,000
B)$5,000
C)$5,600
D)$8,000

Question

Quizplus · Accepted Answer

The original cost of the asset is $48,000 with a useful life of 6 years, resulting in an annual depreciation of $8,000 ($48,000 / 6 years). After 2 years, $16,000 ($8,000 x 2 years) has been depreciated. The overhaul costs $8,000, increasing the asset's total cost to $56,000 ($48,000 + $8,000). However, $16,000 has already been depreciated, leaving $40,000 ($56,000 - $16,000) to be depreciated over the remaining 8 years (4 original + 4 additional), resulting in an annual depreciation of $5,000 ($40,000 / 8 years).

A Company Purchases for $48,000 an Asset That Has a Useful