Aledo Manufacturing utilizes a calendar year as its fiscal year and depreciates plant assets using the straight-line method. On January 2nd, 2017, the company purchased a semi-truck for $215,000 with a useful life of ten years and an estimated salvage value of $23,000. On January 1st, 2022, the company decides to extend the useful life to twelve years while decreasing the estimated salvage value to $21,000. What amount will Aledo report as depreciation expense for the year ended December 31st, 2022?

Depreciation expense for the year ended December 31st, 2022 = $14,000.

Explanation:

Determine the initial depreciable cost.

Initial depreciable cost = Acquisition cost - Initial Salvage value.

Initial depreciable cost = 215,000 - 23,000.

Initial depreciable cost = 192,000.

Determine the initial annual depreciation expense.

The initial annual depreciation expense = Initial depreciable cost/Initial useful life.

The initial annual depreciation expense = 192,000 / 10.

The initial annual depreciation expense = $19,200.

Accumulated depreciation as of December 31, 2021.

The initial accumulated depreciation = initial annual depreciation expense * number of useful years.

The initial accumulated depreciation = 19,200 * 5.

The initial accumulated depreciation as of December 31, 2021 = $96,000.

New useful year

Remaining useful years = New number of useful year - Utilized number of useful year.

Remaining useful years = 12 - 5 = 7 years.

Determining the new depreciable cost.

The new depreciable cost = Current book value - New salvage value.

Current book value can be computed as: Acquisition cost - initial accumulated depreciation.

Current book value = 215,000 - 96,000 = $119,000.

The new depreciable cost = Book value - New salvage value.

The new depreciable cost = 119,000 - 21,000.

The new depreciable cost = $98,000.

Determine the new annual depreciation expense.

The new annual depreciation expense = new depreciable cost/remaining number of useful life.

The new annual depreciation expense = 98,000/7.

The depreciation expense for the year ended December 31st, 2022 = $14,000.