Change in Estimates On January 1, 2012, Roosters Co. purchases equipment for $30

Question

Change in Estimates

On January 1, 2012, Roosters Co. purchases equipment for $30,000 and estimates a useful life of eight years and a salvage value of $2,000. On January 1, 2014, Roosters revises the equipment's useful life from eight years to five years. Roosters uses the straight-line method of depreciation.

For both sections below, round your final answers to the nearest whole number.

Required: a. Calculate depreciation expense for 2012, 2013, and 2014.

Year Depreciation Expense

2012  

2013

2014

b. Recalculate 2014 depreciation expense assuming that Roosters leaves the useful life at eight years but reduces the salvage value to $0.

Explanation / Answer

Depreciation for 2012 = (cost -salvage )/ useful life

                                 = (30000 - 2000) / 8

                                 = 28000/ 8 = $ 3500 per year

Depreciation for 2013 = $ 3500

FOr 2014 : Accumulated depreciation at beginning of 2014 = 3500+3500 = 7000

Book value at jan 1 ,2014 = 30000 -7000 = 23000

Remaining useful life = 5 -2 = 3

Depreciation = (23000 - 2000 )/ 3 = 21000/ 3 = $ 7000

b) Depreciation for 2014 = (23000-0 ) / 6 = 23000/ 6 = $ 3833.33

Remaininguseful life = 8-2 = 6 years

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