Question

On July 1, 2019, Cullumber Company purchased new equipment for $85,000. Its estimated useful life was 5 years with a $12,000 salvage value.
On December 31, 2022, the company estimated that the equipment’s remaining useful life was 10 years, with a revised salvage value of $5,000.Compute the revised annual depreciation on December 31, 2022.

Revised annual depreciation $__________________

Answer 1

Answer:

$3620

Explanation:

Assuming that the equipment depreciates with straight-line depreciation,

Initial Annual Depreciation = ($85,000 - $12,000)/5 = $14,600/year

NBV of equipment at December 30, 2022 = $85,000 - ($14,600*3) = $41,200

Revised Annual Depreciation = ($41,200 - $5,000)/10 = $3620/year