19 Big Sips received new information as of January 1 20Y3 fo

19. Big Sips received new information as of January 1, 20Y3, for an asset that was originally purchased for $45,200 on January 1, 20Y1. The original expected useful life was seven years, with an estimated residual value of $4,500. Using the information, Big Sips now estimates the machine will last another 10 years with a residual value of $5,000. If Big Sips uses the straight-line method to determine depreciation expense, calculate the following: a. Accumulated depreciation as of January 1 (round to the nearest whole dollar) b. Revised annual depreciation expense for December 31 (round to the nearest whole dollar)

Solution

Answer

a.

Cost of Asset = $45,200

Salvage Value = $4,500

No. of Useful Years = 7

Depreciation per year = (Cost – Salvage Value) / No. of Useful years

= (45,200 – 4,500) / 7

= $5,814 per year

Accumulated Depreciation after 2 Years = Depreciation per year * 2 Years

= $5,814 * 2

Accumulated Depreciation after 2 Years = $11,628

b.

It is mentioned that now the Asset has $5,000 Residual value and remaining life of 10 Years.

Depreciation for December 31 = [(Cost – Depreciation till now) – New Salvage Value] / No. of useful years

= [(45,200 – 11,628) – 5,000] / 10

= 28,572 / 10

Depreciation for December 31 = $2,857