An asset was purchased for $120,000 on January 1, 2010 and originally estimated to have a useful life of 10 years with a residual value of $10,000. At the beginning of 2012, it was determined that the remaining useful life of the asset was only 4 years with a residual value of $2,000. Calculate the 2012 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 revised depreciation expense per year can be calculated as follows:

Depreciable cost = cost of asset - residual value
Depreciable cost = $120,000 - $2,000 = $118,000

Revised annual depreciation = depreciable cost / remaining useful life
Revised annual depreciation = $118,000 / 4 = $29,500

Therefore, the 2012 depreciation expense using the revised amounts and straight line method would be $29,500/2 = $14,750.

However, since it is only asking for the 2012 depreciation expense, we need to calculate the depreciation expense for only 1 year of the remaining useful life, which will be $29,500/4 = $7,375.

Hence, the correct choice is C ($7,375).

An Asset Was Purchased for $120,000 on January 1, 2010