Mobic Inc.acquired some manufacturing equipment in January 2013 for $400,000 and depreciated it $40,000 each year for three years on a straight-line basis.During 2016,the manufacturer announced a new technology for this type of equipment that will make the old models obsolete by the end of 2019.As a result,Mobic will plan to replace the equipment at that time,effectively reducing the asset's life from ten to seven years.In its financial statements for 2016,Mobic should:

Question

Quizplus · Accepted Answer

Since the equipment has been depreciated for three years on a straight-line basis, the accumulated depreciation would be $120,000 ($40,000 x 3 years). Therefore, the book value of the equipment as of 12/31/2016 would be $280,000 ($400,000 - $120,000). Since the equipment will become obsolete by the end of 2019, the remaining useful life of the equipment as of 12/31/2016 is three years (from 2017-2019). Thus, the depreciation expense for 2016 should be $80,000 ($280,000/3). Option C is incorrect since there is no error in measuring depreciation during 2013-2015 as it was depreciated on a straight-line basis which is the correct method of depreciation.

Mobic Incacquired Some Manufacturing Equipment in January 2013 for $400,000 and and Depreciated