Lundholm Company purchased a machine for $103,300 on January 1, 2014. Lundholm d
ID: 2422866 • Letter: L
Question
Lundholm Company purchased a machine for $103,300 on January 1, 2014. Lundholm depreciates machines of this type by the straight-line method over a 10-year period using no salvage value. Due to a change in sales patterns, on January 1, 2016, management determines the useful life of the machine to be a total of five years. What amount should Lundholm record for depreciation expense for 2016? The tax rate is 35%.
a) $17,906
b) $20,660
c) $18,594
d) $27,547
Lundholm Company purchased a machine for $103,300 on January 1, 2014. Lundholm depreciates machines of this type by the straight-line method over a 10-year period using no salvage value. Due to a change in sales patterns, on January 1, 2016, management determines the useful life of the machine to be a total of five years. What amount should Lundholm record for depreciation expense for 2016? The tax rate is 35%.
a) $17,906
b) $20,660
c) $18,594
d) $27,547
Explanation / Answer
Depreciation when useful life = 10 years = 103300 / 10 = 10330
Book Value as on Jan 1 2016 ( Depreciated for 2 years) = 103300 - 10330 - 10330 = 82640
Now after revision, useful life = 5 years
Depreciated life = 2 years; Remianing useful life = 5 - 2 = 3 years
Depreciation after revision = 82640 / 3 = 27547
Depreciation for 2016 = 27547
Correct Answer: D
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