Assume that Able Company purchased a new machine on January 1, 2010, for $80,000

Question

Assume that Able Company purchased a new machine on January 1, 2010, for $80,000. The machine has an estimated useful life of nine years and a residual value of $8,000. Able has chosen to use the straight-line method of depreciation. On January 1, 2012, Able discovered that the machine would not be useful beyond December 31, 2015, and estimated its value at that time would be $2,000.

Required:

1. Calculate the depreciation expense, the accumulated depreciation, and the book value of the asset for each year, 2010 to 2015.

2. Was the depreciation recorded in 2010 and 2011 wrong? If so, why was it not corrected?

Explanation / Answer

Calculation of the depreciation and book values Depreciation per year (Cost- Salvage)/ Life (80000-8000)/9 8000 From 2012 Book Value 80000-8000*2 64000 Depreciation per year ( 64000-2000)/4 15500 Year Depreciation Book Value 2010 8000 72000 2011 8000 64000 2012 15500 48500 2013 15500 33000 2014 15500 17500 2015 15500 2000

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