Omaha Beef Co. purchased a delivery truck for $50,000. The residual value at the end of an estimated eight-year service life is expected to be $10,000. The company uses straight-line depreciation for the first six years. In the seventh year, the company now believes the truck will be useful for a total of 10 years (four more years), and the residual value will remain at $10,000. Calculate depreciation expense for the seventh year.

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Business

Angelo

28 July, 13:01

Omaha Beef Co. purchased a delivery truck for $50,000. The residual value at the end of an estimated eight-year service life is expected to be $10,000. The company uses straight-line depreciation for the first six years. In the seventh year, the company now believes the truck will be useful for a total of 10 years (four more years), and the residual value will remain at $10,000. Calculate depreciation expense for the seventh year.

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Cael Salazar · Answer 1

2500

Explanation:

First depreciate for 6 years using regular method: (Cost - Salvage Value) / Initial Useful life

(50,000-10,000) / 8 = 5000 < - this is annual depreciation

For 6 years, $30,000 accumulated depreciation

Now to calculate change in useful life, you do (Cost - Accumulated Depreciation - Salvage Value) / Remaining Useful life

Remaining Useful life = 10-6 = 4

(50,000-30,000-10,000) / 4 = 2500