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A company used straight-line depreciation for an item of equipment that cost $12,000
A company used straight-line depreciation for an item of equipment that cost $12,000. Had a salvage value of $2,000, and had a five-year useful life. After depreciating the asset for three complete years, the salvage value was reduced to $1,200 and its total useful life was increased from five years to six years. Determine the amount of depreciation to be charges against the machine during each of the remaining years of its useful life:
A. $1,000
B. $1,800
C. $1,467
D. $1,600
E. $2,160
Expert Solution
Answer: D .
Depreciation = Cost - residual value / useful life
Depreciation = 12000 - 2000 / 5
Depreciation = $ 2000
Book value after 3 years = cost - accumulated depreciation
Book value after 3 years = 12000 - (2000 * 3)
Book value after 3 years = $ 6000
Remaining useful life = 3 years
Depreciation = 6000 - 1200 / 3
Depreciation = $ 1600
Thus, correct answer is D.
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