[The following information applies to the questions displayed below.]

Farmer Company purchased equipment on January 1, Year 1 for $82,000. The machines are estimated to have a 5-year life and a salvage value of $4,000. The company uses the straight-line method.

-If the original expected life remained the same (i.e. ,5-years),but at the beginning of Year 4,the salvage value was revised to $8,000,what is the annual depreciation expense for each of the remaining years?
A)$5,440
B)$27,200
C)$13,600
D)$14,800

Question

[The following information applies to the questions displayed below.]

Farmer Company purchased equipment on January 1, Year 1 for $82,000. The machines are estimated to have a 5-year life and a salvage value of $4,000. The company uses the straight-line method.

-If the original expected life remained the same (i.e. ,5-years),but at the beginning of Year 4,the salvage value was revised to $8,000,what is the annual depreciation expense for each of the remaining years?
A)$5,440
B)$27,200
C)$13,600
D)$14,800

Quizplus · Accepted Answer

Annual depreciation expense for Years 1 through 3 = (Cost of $82,000 - Salvage value of $4,000)÷ 5 years = $15,600
Book value at end of Year 3 = Cost of $82,000 - Accumulated depreciation of ($15,600 × 3)= $35,200
Annual depreciation expense for Years 4 through 8 = (Book value of $35,200 - Revised salvage value of $8,000)÷ Remaining years of 2 = $13,600

[The Following Information Applies to the Questions Displayed Below