ALCO CORP. PURCHASED A MACHINE FOR $132,000 ON JANUARY 1, 2008 AND DEPRECIATED I

Question

ALCO CORP. PURCHASED A MACHINE FOR $132,000 ON JANUARY 1, 2008 AND DEPRECIATED IT BY THE STRAIGHT-LINE METHOD USING AN ESTIMATED USEFUL LIFE OF EIGHT YEARS WITH NO SALVAGE VALUE. ON JANUARY 1, 2011, ALCO DETERMINED THAT THE MACHINE HAD USEFUL LIFE OF SIX YEARS FROM THE DATE OF ACQUISITON AND WILL HAVE A SALVAGE VALUE OF $12,000. A CHANGE IN ESTIMATE WAS MADE IN 2011 TO RELFECT THESE ADDITIONAL DATA. WHAT AMOUNT SHOULD ALCO RECORD AS THE BALANCE OF THE ACCUMULATED DEPRECIATION ACCOUNT FOR THIS MACHINE AT DECEMBER 31, 2011?

A) $73,000

B) $77,000

C) $61,250

D) $63,600

Explanation / Answer

132,000/8= 16,500 so after 3 years there would be 49,500 of accumulated depreciation. Book value would be 132,000-49,500= 82,500 If they cut the useful life to six years (three years more) and added a salvage value of 12,000, we would have (82,500-12,000)/3 = 23,500 per year. So accumulated depreciation at 12/31/2011 49,500+23,500= 73,000 (A).

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