Question 8 On January 1, 2019, Romero Company purchased equipment for $320,000.

Question

Question 8 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 from Jan 1,2019 to dec 31,2025 (320,000-18000)/16 18875 Accumulated depreciation for seven years = 18,875*7= 132125 thus book value on Jan 1,2026 original cost 320,000 less:Accumulated depreciaion 132125 book value as on jan 1,2026 187,875 Add:cost of overhaul 41,000 total 228,875 Remianing useful life new useful life 30 depreciated upto dec 31,2015 -7 Remianing useful life 23 Depreciation expense for the year (228,875 - 7500)/23 9625 per year Depreciation for year 2026,2027 and 2028 will be = 9625*3 28875 book value at December 31,2028 total cost on jan 1,2026 228,875 less:Accumulated depreciation 28875 book value at December 31,2028 200,000 answer

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