The following information is available on a depreciable asset owned by First Bank & Trust: The asset's book value is $70,000 on October 1, Year 3. On that date, management determines that the asset's salvage value should be $5,000 rather than the original estimate of $10,000. Based on this information, the amount of depreciation expense the company should recognize during the last three months of Year 3 would be:

Question

The following information is available on a depreciable asset owned by First Bank & Trust:  The asset's book value is $70,000 on October 1, Year 3. On that date, management determines that the asset's salvage value should be $5,000 rather than the original estimate of $10,000. Based on this information, the amount of depreciation expense the company should recognize during the last three months of Year 3 would be:

Quizplus · Accepted Answer

The depreciation expense can be calculated using the formula:

Depreciation Expense = (Book Value - Salvage Value) / Remaining Useful Life

In this case, the remaining useful life is 3 months or 0.25 years (last three months of Year 3).

So, the depreciation expense for the last three months of Year 3 would be:

Depreciation Expense = ($70,000 - $5,000) / 0.25 = $2,020,000 / 100 = $2,020

Rounded to the nearest dollar, the answer is $2,031.25, which is C.

The Following Information Is Available on a Depreciable Asset Owned