Nanki Corporation purchased equipment at the beginning of 2015 for $650,000.In 2015 and 2016,Nanki depreciated the asset on a straight-line basis with an estimated useful life of 8 years and a $10,000 residual value.In 2017,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 2017 on this equipment?

Question

Quizplus · Accepted Answer

In 2015 and 2016, the equipment was depreciated for 2 years.
The yearly depreciation = (cost - residual value) / useful life = ($650,000 - $10,000) / 8 years = $80,000 per year.
The accumulated depreciation at the end of 2016 = 2 years x $80,000 per year = $160,000.
The carrying amount of the equipment at the end of 2016 = cost - accumulated depreciation = $650,000 - $160,000 = $490,000.
In 2017, Nanki revised the useful life to a total of six years (four more years) with zero residual value. The remaining useful life at the beginning of 2017 = 6 - 2 = 4 years.
The revised yearly depreciation = (cost - accumulated depreciation) / remaining useful life = ($650,000 - $160,000) / 4 years = $122,500 per year.
Therefore, the depreciation expense for 2017 would be $122,500.

Nanki Corporation Purchased Equipment at the Beginning of 2015 for $650,000.In