Flounder Corp. purchased a piece of equipment for $51,500. It estimated a 7-year

Question

Flounder Corp. purchased a piece of equipment for $51,500. It estimated a 7-year life and $2,000 salvage value. At the end of year 3 (before the depreciation adjustment), it estimated the new total life to be 9 years and the new salvage value to be $5,000. Compute the revised depreciation. Company uses straight-line depreciation method. Flounder Corp. purchased a piece of equipment for $51,500. It estimated a 7-year life and $2,000 salvage value. At the end of year 3 (before the depreciation adjustment), it estimated the new total life to be 9 years and the new salvage value to be $5,000. Compute the revised depreciation. Company uses straight-line depreciation method.

Explanation / Answer

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First, we need to calculate book value at the end of 2nd year Book value=51500-(51500-2000)/7*2=$37,357 Now, we need to calculate revised depreciation per year based on new life Revised depreciation=(37357-5000)/(9-2)=$4,622

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