Equipment costing $30,000 with a residual value of $3,000 and an estimated life of eight years has been depreciated using the straight-line method for two years. Assuming a revised estimated total life of five years, the depreciation expense for year 3 would be
A) $3,375.
B) $4,500.
C) $6,750.
D) $5,400.

Question

Quizplus · Accepted Answer

The depreciable cost of the equipment is $27,000 ($30,000 - $3,000). The remaining depreciable cost after 2 years of straight-line depreciation is $21,600 ($27,000 ÷ 8 × 6). With a revised life of 5 years, the depreciation expense for year 3 would be $4,320 ($21,600 ÷ 3 years remaining) or $6,750 ($27,000 ÷ 5 years remaining). The answer is C.

Equipment Costing $30,000 with a Residual Value of $3,000 and an Estimated