When originally purchased, a vehicle costing $23,000 had an estimated useful life of 8 years and an estimated salvage value of $3,000. After 4 years of straight-line depreciation, the asset's total estimated useful life was revised from 8 years to 6 years and there was no change in the estimated salvage value. The depreciation expense in year 5 equals:

A) $5,750.

B) $2,500

C) $11,500.

D) $5.000.

E) $2.875

The depreciation expense in year 5 is option (D) $5,000

Explanation:

Data provided in the question:

Original cost of the vehicle = $23,000

Initial estimated useful life = 8 years

Estimated salvage value = $3,000

Revised useful life = 6 years

Now,

Initial depreciation rate = [ Cost - Salvage value ] : [Useful life ]

= [ $23,000 - $3,000 ] : 8

= $2,500 per year

Accumulated depreciation for the 4 years

= $2,500 * 4

= $10,000

Book value for the year 5

= Cost - Accumulated depreciation for the 4 years

= $23,000 - $10,000

= $13,000

Therefore,

Revised depreciation

= [ Book value for the year 5 - Salvage value ] : (Remaining life)

= [$13,000 - $3,00 ] : 2 years [∵ 6 years - 4 years = 2 years]

= $5,000

Hence,

The depreciation expense in year 5 is option (D) $5,000