Question

People's Clinic purchased a special machine for use in its laboratory on January 2, 2016. The machine cost $100,000 and was expected to last 10 years. Its salvage value was estimated to be $6,000. By early 2018, it was evident that the machine will be useful for a total of only seven years. The salvage value after seven years was estimated to be $7,500. People's Clinic uses straight-line depreciation. Compute the proper depreciation expense on the machine for 2018.
Depreciation Expense for 2018; $ __.

Answer 1

Answer:

Depreciation Expense for 2018; $10,528.57  

Explanation:

On January 2, 2016

machine cost = $100,000

Useful life = 10 years

Annual depreciation = ($100,000 - $6000)/10

                                  = $9,400

By early 2018,

Carrying amount of the machine

= $100,000 - 2($9,400)

= $100,000 - $18,800

= $81,200

Useful life is reassessed to 7 years (rather than 8) with a salvage value of $7,500

Annual Depreciation = ($81,200 - $7,500)/7

                                  =  $73,700/7

                                  =  $10,528.57  

Depreciation Expense for 2018; $10,528.57