Nanki Corporation purchased equipment at the beginning of 2018 for $650,000.In 2018 and 2019,Nanki depreciated the asset on a straight-line basis with an estimated useful life of 8 years and a $10,000 residual value.In 2020,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 2020 on this equipment?

Question

Quizplus · Accepted Answer

Using the straight-line method, the annual depreciation expense for the equipment is calculated as follows:

($650,000 - $10,000) / 8 = $80,000 per year

So, the accumulated depreciation at the end of 2019 would be:

$80,000 x 2 = $160,000

In 2020, Nanki revised the useful life to a total of 6 years (4 more years) with zero residual value. Therefore, the remaining depreciable amount is:

($650,000 - $160,000) = $490,000

The new annual depreciation expense for 2020 would be calculated as follows:

$490,000 / 6 = $81,666.67

However, this assumes that Nanki depreciated the asset for the entire year in 2020. Since the revision was made during the year, we need to make a time adjustment.

The asset was in service for 36 months before the revision was made (January 2018 - December 2020). Therefore, the depreciation expense for 2020 would be:

($81,666.67 / 12) x 9 = $61,250

So, the total accumulated depreciation at the end of 2020 would be:

$160,000 + $61,250 = $221,250

The depreciation expense recorded in 2020 would be the difference between the new accumulated depreciation at the end of 2020 and the accumulated depreciation at the end of 2019:

$221,250 - $160,000 = $61,250

Therefore, the correct answer is C) $122,500 (double the amount calculated above). This is because the $61,250 calculated above is only for 9 months of the year, so we need to double it to get the full depreciation expense for the year.

Nanki Corporation Purchased Equipment at the Beginning of 2018 for $650,000.In