Question

Morgan Corporation purchased a depreciable asset for $600,000 on January 1, 2018. The estimated salvage value is $60,000, and the estimated useful life is 9 years. The straight-line method is used for depreciation. In 2021, Morgan changed its estimates to a total useful life of 5 years with a salvage value of $90,000. What is 2021 depreciation expense

Answer 1

Answer:

Annual depreciation= $165,000

Explanation:

First, we need to calculate the accumulated depreciation at the end of 2020:

Annual depreciation= (original cost - salvage value)/estimated life (years)

Annual depreciation= (600,000 - 60,000) / 9

Annual depreciation= $60,000

Three full depreciable years have passed.

Accumulated depreciation= 60,000*3= $180,000

Now, the annual depreciation with the revised information:

Book value= 600,000 - 180,000= $420,000

The useful life remaining is two years.

Annual depreciation= (420,000 - 90,000) / 2

Annual depreciation= $165,000