Carpenters Company, a manufacturing company, acquired equipment on January 1, 2017 for $510,000. Estimated useful life of the equipment was seven years and the estimated residual value was $12,000. On January 1, 2020, after using the equipment for three years, the total estimated useful life has been revised to nine total years. Residual value remains unchanged. The company uses the straight-line method of depreciation. Calculate depreciation expense for 2020. (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.)

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andromache andromache · Answer 1 · 2019-12-20T08:24:33+01:00

Answer:

$47,428.50

Explanation:

For computing the depreciation expense for 2020, first we have to determine the depreciation expense so that we can find the book value of an asset

So, under the straight-line method, the depreciation expense for 2017 would be

= (Original cost - residual value) ÷ (useful life)

= ($510,000 - $12,000) ÷ (7 years)

= ($498,000) ÷ (7 years)

= $7,1143

For three years, the depreciation would be

= $7,1143 × 3 years

= $213,429

In this method, the depreciation is same for all the remaining useful life

Now the ending book value would be

= Acquired value of an asset - accumulated depreciation

= $510,000 - $213,429

= $296,571

Now the depreciation expense for 2020 would be

= (Ending book value - residual value) ÷ (remaining life)

= ($296,571 - $12,000) ÷ (6 years)

= ($284,571) ÷ (6 years)

= $47,428.50

The remaining life would be

= 9 years - 3 years

= 6 years