Mobic Inc. acquired some manufacturing equipment in January 2010 for $400,000 and depreciated it $40,000 each year for three years on a straight-line basis. During 2013, the manufacturer announced a new technology for this type of equipment that will make the old models obsolete by the end of 2016. 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 2013, Mobic should:
A)Charge $280,000 in depreciation expense.
B)Report the book value of the equipment in its12/31/2013 balance sheet at $210,000.
C)Make an adjustment to retained earnings for the error in measuring depreciation during 2010-2012.
D)None of the above is correct.

Question

Quizplus · Accepted Answer

The book value of the equipment in the balance sheet at 12/31/2013 should be $210,000 ($400,000 - $120,000 in accumulated depreciation - $70,000 for the adjustment due to the shortened useful life). Mobic should continue to charge $40,000 in depreciation expense for 2013, as they have done for the past three years. There is no indication that an adjustment to retained earnings is necessary in this scenario.

Mobic Inc Acquired Some Manufacturing Equipment in January 2010 for $400,000