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A company used straight-line depreciation for an item of equipment that cost $12,550, had a salvage value of $2,200 and a six-year useful life. After depreciating the asset for three complete years, the salvage value was reduced to $1,255 but its total useful life remained the same. Determine the amount of depreciation to be charged against the equipment during each of the remaining years of its useful life:Multiple Choice$2,200.$1,035.$4,498.$2,040.$1,980.

Question

A company used straight-line depreciation for an item of equipment that cost 12,550,hadasalvagevalueof12,550, had a salvage value of 2,200 and a six-year useful life. After depreciating the asset for three complete years, the salvage value was reduced to 1,255butitstotalusefulliferemainedthesame.Determinetheamountofdepreciationtobechargedagainsttheequipmentduringeachoftheremainingyearsofitsusefullife:MultipleChoice1,255 but its total useful life remained the same. Determine the amount of depreciation to be charged against the equipment during each of the remaining years of its useful life:Multiple Choice2,200.1,035.1,035.4,498.2,040.2,040.1,980.

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Solution

To solve this problem, we first need to calculate the depreciation for the first three years using the original salvage value.

Step 1: Calculate the annual depreciation for the first three years. The formula for straight-line depreciation is (Cost - Salvage Value) / Useful Life. So, the annual depreciation for the first three years is (12,550−12,550 - 2,200) / 6 = $1,725 per year.

Step 2: Calculate the total depreciation for the first three years. This is simply 3 years * 1,725/year=1,725/year = 5,175.

Step 3: Calculate the book value of the equipment after three years. This is the original cost minus the total depreciation so far, or 12,550−12,550 - 5,175 = $7,375.

Step 4: Calculate the annual depreciation for the remaining three years. Now that the salvage value has been reduced to 1,255,weusethesameformulaasinstep1,butwiththenewbookvalueandsalvagevalue:(1,255, we use the same formula as in step 1, but with the new book value and salvage value: (7,375 - 1,255)/3=1,255) / 3 = 2,040 per year.

So, the amount of depreciation to be charged against the equipment during each of the remaining years of its useful life is $2,040.

This problem has been solved

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