An asset was purchased for $120,000 on January 1, Year 1 and originally estimated to have a useful life of 10 years with a residual value of $10,000. At the beginning of the third year, it was determined that the remaining useful life of the asset was only four years with a residual value of $2,000. Calculate the third-year depreciation expense using the revised amounts and straight-line method.
A) $25,000
B) $11,000
C) $24,000
D) $24,500

Question

Quizplus · Accepted Answer

The annual straight-line depreciation would have been calculated as follows:
($120,000 - $10,000) / 10 years = $11,000 per year
After two years, accumulated depreciation would be $22,000 ($11,000 x 2). The remaining depreciable amount would be $88,000 ($120,000 - $22,000 - $10,000).
The revised annual depreciation expense would be:
($88,000 - $2,000) / 4 years = $21,500 per year
So, the third-year depreciation expense would be:
$21,500 - $11,000 = $10,500
Adding this to the accumulated depreciation from the previous years gives us:
$22,000 + $10,500 = $32,500
However, we need to subtract the accumulated depreciation from the asset's original estimated life to get the correct depreciation expense for year three:
$32,500 - ($120,000 - $10,000) / 10 years x 2 years = $32,500 - $22,000 = $10,500
Therefore, the correct answer is C) $24,000.

An Asset Was Purchased for $120,000 on January 1, Year