Lundholm Company purchased a machine for $100,000 on January 1,2014.Lundholm depreciates machines of this type by the straight-line method over a 10-year period using no salvage value.Due to a change in sales patterns,on January 1,2016,management determines the useful life of the machine to be a total of five years.What amount should Lundholm record for depreciation expense for 2016? The tax rate is 40%.

Question

Quizplus · Accepted Answer

The machine was originally depreciated over 10 years, so the annual depreciation was $10,000 ($100,000/10). By January 1, 2016, two years of depreciation have been recorded, leaving a book value of $80,000 ($100,000 - $20,000). With the revised useful life of 5 years total, and 2 years already passed, the remaining life is 3 years. The new annual depreciation is $26,667 ($80,000/3).

Lundholm Company Purchased a Machine for $100,000 on January 1,2014