On January 1, 2010, Wheeler, Inc.purchased some equipment for $3, 900.The equipment had an estimated life of five years and an expected residual value of $200.On January, 1, 2012, the estimated total economic life from the original purchase date was changed to six years and the estimated residual value was increased to $300.What is the amount of depreciation expense for the year 2012?

A) $480
B) $530
C) $580
D) $424

Question

Jihad Nakib · Accepted Answer

Final Answer : B, Explanation :  - Using the straight-line method, we can calculate the annual depreciation expense as follows:Depreciation per year = (Purchase price - Residual value) / Estimated life in years- For the period 2010-2011, the depreciation expense was:(3,900 - 200) / 5 = $740- After the revision of the estimated economic life and residual value, the remaining depreciable cost is:3,900 - 740 = $3,160- For the period 2012-2015 (6 years), the annual depreciation expense will be:(3,160 - 300) / 6 = $510- However, for the year 2012, the equipment was used only for 1/6 of the total estimated life, so the depreciation expense for that year will be:1/6 x $510 = $85- Therefore, the correct answer is B) $530, which is obtained by adding the depreciation expense of the first two years ($740 + $85)

Definitions

Learning Objectives

Learning Objectives

Related questions