Question

On January 1, 2003, Lane, Inc. acquires equipment for $100,000 with an estimated ten‐year useful life. Lane estimates a $10,000 salvage value and uses the straight‐line method of depreciation. During 2007, after its 2006 financial statements have been issued, Lane determines that, owing to obsolescence, this equipment's remaining useful life was only four more years and its salvage value would be $4,000. In Lane's December 31, 2007 balance sheet, what was the carrying amount of this asset?

Answer 1

Answer:

The carrying amount of this asset is $40,000

Explanation:

It is Important to note that Lane, Inc. uses the straight‐line method of depreciation

Therefore: Depreciation Expense is Calculated as :

(Cost of Asset - Salvage Value) / Number of Useful Life

The 2007 event :

Before the Adjastment

Depreciation Expense = ($100,000 - $10,000) / 10 years

                                       = $ 9,000

Restate Depreciation at the beginning of the year in 2007

Depreciation Expense = ($100,000 - $4,000) / 4 years

                                       = $ 24,000

Carrying Amount of Equipment

Cost of Equipment - 2003                             $100,000

Less Accumulated Depreciation

2003                                                                     ($9000)

2004                                                                     ($9000)

2005                                                                     ($9000)

2006                                                                     ($9000)

2007                                                                    ($24000)

Carrying Amount of Equipment                          $40,000