On January 1, Year 1, Li Company purchased an asset that cost $35,000. The asset had an expected useful life of five years and an estimated salvage value of $7,000. Li uses the straight-line method for the recognition of depreciation expense. At the beginning of the fourth year, the company revised its estimated salvage value to $3,500. What is the amount of depreciation expense to be recognized during Year 4

Question

Mariam Wallace

Business

4 November, 02:19

On January 1, Year 1, Li Company purchased an asset that cost $35,000. The asset had an expected useful life of five years and an estimated salvage value of $7,000. Li uses the straight-line method for the recognition of depreciation expense. At the beginning of the fourth year, the company revised its estimated salvage value to $3,500. What is the amount of depreciation expense to be recognized during Year 4

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Trace Coleman · Answer 1

The amount of depreciation expense to be recognized during Year 4 is $7,350

Explanation:

In order to calculate the amount of depreciation expense to be recognized during Year 4 we would have to calculate first the Depreciation as per straight line method as follows:

Depreciation as per straight line method = (Cost-Residual value) / Useful life

= ($35,000-$7,000) / 5=$5,600

Hence, book value as on beginning of the fourth year=$35,000 - ($5,600*3) = $18,200

Hence, depreciation revised for the 2 remaining years = ($18,200-$3,500) / 2

=$7,350

The amount of depreciation expense to be recognized during Year 4 is $7,350