Exercise 742 Algorithmic Revision of Depreciation On January

Exercise 7-42 (Algorithmic)
Revision of Depreciation

On January 1, 2009, Blizzards-R-Us purchased a snow-blowing machine for $85,000. The machine was expected to have a residual value of $5,000 at the end of its five-year useful life. On January 1, 2011, Blizzards-R-Us concluded that the machine would have a remaining useful life of six years with a residual value of $770.

1.Determine the revised annual depreciation expense for 2011 using the straight-line method.
$   per year

Solution

Depreciation expense/year=(Cost-Salvage value)/Useful Life

=(85000-5000)/5=$16000/year

Hence Depreciation expense for the first 2 years=$16000

Hence Book value as on 2011=Cost-Accumulated Depreciation expense

=85000-(16000*2)=$53000

Hence revised Depreciation expense=($53000-$770)/6

=$8705/year for the remaining 6 years of useful life

1.Hence revised annual depreciation expense =$8705.