Laurens Company purchased equipment that cost $10,000 on January 1, 2014. The asset had an expected useful life of five years and an estimated salvage value of $2,000. Laurens uses the straight-line method for the recognition of depreciation expense. At the beginning of the fourth year of usage, the company revised its estimated salvage value to $1,000. Based on this information, the amount of depreciation expense to be recognized at the end of 2015 is:

Question

Quizplus · Accepted Answer

Using the straight-line method, the annual depreciation expense would be ($10,000 - $2,000) / 5 = $1,600. However, with the revised salvage value of $1,000, the depreciable amount for the remaining two years is ($10,000 - $1,000) = $9,000. Therefore, the annual depreciation expense for 2015 and 2016 would be $4,500 ($9,000 / 2). Therefore, the depreciation expense recognized at the end of 2015 would be $4,500 / 2 = $2,250. However, since the depreciation expense for the first three years would have been $4,800 ($1,600 x 3), the total accumulated depreciation at the end of 2015 would be $4,800 + $2,250 = $7,050. Therefore, the depreciation expense recognized at the end of 2015 would be $7,050 - $4,800 = $2,250 - $1,600 = $650. Therefore, the correct answer is B) $2,100.

Laurens Company Purchased Equipment That Cost $10,000 on January 1