Leo's lawn care purchased equipment on january 1. the cost was $15,000, and the equipment had a residual value of $4,000. the equipment was given a useful life of 7 years. after the end of two years, it was determined that the equipment would be obsolete in 3 more years, and the residual value would still be $4,000. what will be the depreciation under the straight-line method to the nearest dollar for the third year?

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Business

Aron

27 November, 11:17

Leo's lawn care purchased equipment on january 1. the cost was $15,000, and the equipment had a residual value of $4,000. the equipment was given a useful life of 7 years. after the end of two years, it was determined that the equipment would be obsolete in 3 more years, and the residual value would still be $4,000. what will be the depreciation under the straight-line method to the nearest dollar for the third year?

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Abdiel Foster · Answer 1

For the 1st case: It was stated that the initial value is $15,000, salvage value is $4,000 and the useful life is 7 years. Therefore the depreciation per year assuming straight line depreciation is:

Depreciation = ($15,000 - $4,000) / 7 years

Depreciation = $1,571.43 / year

Since this 1st case covered 2 years, then the value after 2 years is:

Value after 2 years = $15,000 - ($1,571.43 / year) * 2 years

Value after 2 years = $11,857.14

For the 2nd case: After 2 years the useful life is adjusted and there would only be a remaining life of 3 more years whie the salvage value is still at $4,000. The depreciation after 2 years is:

Depreciation = ($11,857.14 - $4,000) / 3 years

Depreciation = $2,619 / year

Therefore the depreciation for the third year is $2,619. While the remaining value after 3 years is $11,857.14 - $2,619 = $9,238.14