On January 1, Year 1, Stewart Corporation purchased equipment with a list price of $120,000. A discount of 2% was granted on the equipment; the shipping terms were FOB shipping point, and the transportation cost was $3,000. Installation and testing costs amounted to $4,000. The equipment had an estimated useful life of 4 years and salvage value of $10,000. At the beginning of Year 3, Stewart revised the expected life of the asset to six years and the salvage value to $12,000.Required: Compute the depreciation expense using straight-line method for each of the six years and in total.
What will be an ideal response?
| 2016 | $ 28,650 |
| 2017 | 28,650 |
| 2018 | 13,825 |
| 2019 | 13,825 |
| 2020 | 13,825 |
| 2021 | 13,825 |
| ? | $ 112,600 |
Years 1 and 2:
Annual depreciation = (Cost of $124,600 ? Salvage of $10,000) ÷ 4 years = $28,650 per year
Book value at end of Year 2 = Cost of $124,600 ? Accumulated depreciation of (28,650 per year × 2 years) = $67,300
Years 3, 4, 5, and 6:
Annual depreciation = (Book value of $67,300 ? Revised salvage value of $12,000) ÷ Remaining years of 4 = $13,825 per year
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