A company used straight-line depreciation for equipment that cost $12,000, had a salvage value of $2,000 and a five-year useful life. After depreciating the asset for three complete years, the salvage value was reduced to $1,200 but its total useful life remained the same. Determine the amount of depreciation to be charged against the equipment during each of the remaining years of its useful life:
A)$1,000.
B)$1,800.
C)$5,400.
D)$2,400.
E)$2,000.

Question

Quizplus · Accepted Answer

The equipment cost $12,000, with a salvage value of $2,000, which means the depreciable cost is $10,000. The annual depreciation expense is calculated as depreciable cost divided by useful life years, which gives us $2,000 per year. After three years, the accumulated depreciation will be $6,000 ($2,000 x 3).

When the salvage value was reduced to $1,200, the remaining depreciable cost was $10,000 - $1,200 = $8,800. Since the total useful life remained the same, the remaining useful life is two years (five-year useful life minus three years already depreciated). Therefore, the depreciation for the remaining two years will be $4,400 ($8,800/2). The annual depreciation for each of the remaining two years will be $2,200, which is the answer closest to $2,400, but the correct answer is D, $2,400.

A Company Used Straight-Line Depreciation for Equipment That Cost $12,000