Nanki Corporation purchased equipment at the beginning of 2012 for $650,000. In 2012 and 2013, Nanki depreciated the asset on a straight-line basis with an estimated useful life of 8 years and a $10,000 residual value. In 2014, due to changes in technology, Nanki revised the useful life to a total of six years (four more years) with zero residual value. What depreciation expense would Nanki record for the year 2014 on this equipment?

Question

Quizplus · Accepted Answer

The depreciation for 2012 and 2013 was [($650,000 - $10,000)/8] x 2 = $160,000. This leaves a book value of $490,000 ($650,000 - $160,000), so the new annual depreciation would be $122,500 ($490,000/4).

Nanki Corporation Purchased Equipment at the Beginning of 2012 for $650,000