On January 1, 2019, Romero Company purchased equipment for $320,000. The equipme

Question

 On January 1, 2019, Romero Company purchased equipment for $320,000. The equipment was assigned an $18,000 residual value and a 16-year life. Romero Company will use the straight-line method to depreciate the equipment. On January 1, 2026, Romero Company spent $41,000 to overhaul the equipment. This capital expenditure resulted in Romero Company changing the life of the equipment from 16 years to 30 years and adjusting the residual value to be $7,500 at the end of the 30 years.  Calculate the book value of the equipment at December 31, 2028.

Explanation / Answer

Depreciation amount per year = (320000-18000)/16 =$18,875

Book value as on Jan 1, 2026= 320000-7*18875 =$187875

Capital expenditures=$41,000

Revised book value on Jan 1, 2026 =$228875

Revised salvage value =$7500 at the end.of 30 year

Remaining life =23 years

Depreciable amount =$9625

Book value as on Dec 31,2028=

228875-3*9625 =$200000

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