On January 1, 2012 Eastwood Company purchased an asset that had cost $48,000. The asset had a 8-year useful life and an estimated salvage value of $2,000. Eastwood depreciates its assets on the straight-line basis. On January 1, 2016 the company spent $12,000 to improve the quality of the asset. Based on this information, the recognition of depreciation expense in 2016 would

Question

Quizplus · Accepted Answer

($48,000 cost - $2,000 salvage)/8 years = $5,750 original annual depreciation; $5,750 x 4 years = $23,000 accum. depr. at time of improvement; ($48,000 orig. cost - $23,000 accum. depr. + $12,000 improvement - $2,000 salvage)/4 remaining years = $8,750 new annual depreciation; Recognizing the new depreciation expense decreases assets and equity by $8,750.

On January 1, 2012 Eastwood Company Purchased an Asset That