A company uses straight line depreciation for an item of equipment that cost $12000, had a salvage value of $2,000 and a five year useful life. After depreciating the asset for three complete years, the salvage value was reduced to $1200 but its total useful life remained the same. Determine the amount of depreciation to be charged against the equipment during each of the remaining years of its useful life.

a. 1000

b. 1800

c. 5400

d. 2400

e. 2000

The amount of depreciation to be charged against the equipment during each of the remaining years of its useful life:

d. 2400

Explanation:

The company uses the straight-line method of depreciation, Depreciation Expense each year is calculated by following formula:

Annual Depreciation Expense = (Cost of equipment - Salvage Value) / Useful Life

From year 1 to year 3:

Annual Depreciation Expense = ($12,000 - $2,000) / 5 = $2,000

Accumulated Depreciation (end of year 3) = $2,000+$2,000+$2,000=$6,000

Book value of the equipment (end of year 3) = $12,000 - $6,000 = $6,000

After depreciating the asset for three complete years, the salvage value was reduced to $1200 and its useful life remained the same. In the 2 remaining year of the asset useful life:

Annual Depreciation Expense = ($6,000 - $1,200) / 2 = $2,400