On January 1, year 8, the company revised its estimations regarding the machine, assigning it a useful life of 5 years beginning from that date, with a salvage value of $15,000 at the end of 5 years. How much will X Company recognize as depreciation expense in year 8?

Complete Question:

X Company acquired a machine on January 2, 2011 for $100,000. The machine, which is depreciated using the double-declining balance method, was estimated to have a 10 year useful life and a salvage value of $10,000. On January 1, 2013, the company revised its estimations regarding the machine, assigning it a useful life of 5 years beginning from that date, with a salvage value of $15,000 at the end of 5 years. How much will X Company recognize as depreciation expense in 2013?

Answer:

$25,600

Explanation:

The depreciation for the year can be calculated as under:

Depreciation Expense = (Cost - Accumulated Depreciation) * 2 / Useful life

Y1: Depreciation expense = ($100,000 - $0) * 2 / 10 years = $20,000

Y2: Depreciation expense = ($100,000 - $20,000) * 2 / 10 years = $16,000

The estimate says that the asset remainder life after first two years left is now 5 years.

Y3: Depreciation expense = ($100,000 - $36,000) * 2 / 5 years = $25,600