At the beginning of 2010, Lehman Company acquired equipment costing $90,000. It

Question

At the beginning of 2010, Lehman Company acquired equipment costing $90,000. It was estimated that this equipment would have a useful life of 6 years and a residual value of $9,000 at that time. The straight-line method of depreciation was considered the most appropriate to use with this type of equipment. Depreciation is to be recorded at the end of each year. During 2012 (the third year of the equipment's life), the company's engineers reconsidered their expectations, and estimated that the equipment's useful life would probably be 7 years (in total) instead of 6 years. The estimated residual value was not changed at that time. However, during 2015 the estimated residual value was reduced to $5,000. Instructions Indicate how much depreciation expense should be recorded each year for this equipment, by completing the following table. Year Depreciation Expense Accumulated Depreciation 2010 $ $ 2011 $ $ 2012 $ $ 2013 $ $ 2014 $ $ 2015 $ $ 2016 $ $

Explanation / Answer

Hi, Depreciation for 2010 and 2011 = (90,000 - 9,000) / 6 = 13,500 . Book Value at the end of 2 years = 90,000 - (13,500 x 2) = 63,000 Depreciation for 2012, 2013, and 2014 =.(63,000 - 9,000) / 5 years remaning = 10,800 Book value at the end of five years = 63,000 - (10,800 x 3) = $30,600 Depreciation for 2015 and 2016 = (30,600 - 5,000) / 2 = 12,800 Accumulated Depr: 2010 = 13500 2011 = 27000 2012 = 37800 2013 = 48600 2014 = 59600 2015 = 72200 2016 = 85000 Thanks, Aman

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