Lundholm Company purchased a machine for $100,000 on January 1, 2007. Lundholm depreciates machines of this type by the straight-line method over a ten-year period using no salvage value. Due to a change in sales patterns, on January 1, 2009, management determines the useful life of the machine to be a total of five years. What amount should Lundholm record for depreciation expense for 2009? The tax rate is 40%.

Question

Quizplus · Accepted Answer

The machine was initially depreciated at $10,000 per year for 2007 and 2008. As of January 1, 2009, the remaining book value is $80,000 ($100,000 - $20,000). With the revised useful life of 5 years and 2 years already passed, the remaining life is 3 years. Therefore, the new depreciation expense for 2009 is $80,000 / 3 = $26,667.

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