Answer:
Depreciation expense:
Year 1 = $27,500
Year 2 = $27,500
Year 3 = $37,500
Year 4 = $37,500
Explanation:
Annual depreciation is computed using the equation given below:
Annual depreciation = {Cost of machine - Salvage value} ÷ Estimated life
= {$135,000 - $25,000} ÷ 4
= $27,500
Depreciation of year 1 is $27,500
Cost of machine in year 2 is {$135,000 - $27,500} = $107,500
Depreciation of year 2 is $27,500
Cost of machine in year 3 is {$107,500 - $27,500} = $80,000
Annual depreciation is computed using the equation given below:
Annual depreciation = {Cost of machine - Salvage value} ÷ Remaining estimated life
= {$80,000 - $5,000} ÷ 2
= $37,500
Depreciation expense of year 3 is $37,500
Cost of machine in year 4 is ($80,000 - $37,500) = $42,500
Depreciation expense of year 4 is $37,500
Cost of machine at the end of year 4 is ($42,500 - $37,500) = $5,000
