Equipment with a cost of $160,000, an estimated residual value of $40,000, and an estimated life of 15 years was depreciated by the straight-line method for 4 years. Due to obsolescence, it was determined that the useful life should be shortened by 3 years and the residual value changed to zero. The depreciation expense for the current and future years is
A) $11,636
B) $16,000
C) $11,000
D) $8,000

Question

Quizplus · Accepted Answer

The annual depreciation expense for the first 4 years is:
($160,000 - $40,000) / 15 = $8,000 per year

The book value after 4 years is:
$160,000 - 4 x $8,000 = $128,000

The remaining depreciable cost is:
$128,000 - $0 = $128,000

The remaining useful life is:
15 years - 4 years = 11 years

The annual depreciation expense for the remaining 11 years is:
$128,000 / 11 = $11,636 per year

Therefore, the total depreciation expense for the current and future years is:
$8,000 x 3 (shortened useful life) + $11,636 x 11 (remaining useful life) = $16,000 + $128,000 = $144,000

Therefore, the answer is B.

Equipment with a Cost of $160,000, an Estimated Residual Value