On January 1, 2001, Bass Co. purchased a machine for $660,000 and depreciated it

Question

On January 1, 2001, Bass Co. purchased a machine for $660,000 and depreciated it by the straight-line method using an estimated useful life of eight years with no salvage value. On January 1, 2004, Bass determined that the machine had a useful life of six years from the date of acquisiton and will have a salvage value of $60,000. An accounting change was made in 2004 to reflect these additional data. The accumulated depreciation for this machine should have a balance at December 31, 2004 of...

a) $365,000
b) $385,000
c) $400,000

PLEASE SHOW ALL CALCULATIONS. THANKS.

Explanation / Answer

Straight line depriciation Purchase price 660000 Useful life 8 years Depriciation pa 82500 Depriciation from Jan 1 2001 to 31 December 2003 ( 82500 *3) 247500 Net Book value as on 31st Dec 2003 ( 660000 - 247500) 412500 Now the useful life has changed from 8 years to 6 years the balance WDV has to be depriciated in the next 3 years ( as 3 years have already been completed) Hence depriciation from 1 Jan 2004 till 31 Dec 2006 pa wll be 137500 ( 412500/3) Hence accumulated depriciation as on 31 December 2004 Depriciation for 3 years 247500 Depriciation for 1 year after useful life changed 137500 Total accumulated depriciation 385000 Hence option b is correct

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.