Equipment was purchased at the beginning of 2012 for $680,000. At the time of it

Question

Equipment was purchased at the beginning of 2012 for $680,000. At the time of its purchase, the equipment was estimated to have a useful life of six years and a salvage value of $80,000. The equipment was depreciated using the straight-line method of depreciation through 2014. At the beginning of 2015, the estimate of useful life was revised to a total life of eight years and the expected salvage value was changed to $50,000. The amount to be recorded for depreciation for 2015, reflecting these changes in estimates, is

a.   $41,250.

b.   $66,000.

c.   $76,000.

d.   $78,750.

Explanation / Answer

depreciation/year=(Cost-Salvage value)/Useful life

=(680,000-80,000)/6=$100,000/year

Hence book value at beginning of 2015=680,000-(100,000*3)=$380,000

Hence depreciation =(380,000-50,000)/5

=$66000(B).

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