Account for change in estimates for depreciation. (LO 4)

In July 2006, Hallmark Company purchased a computer system that cost \(\$ 7,000\). The company estimates that the system will last for 5 years and will have a salvage value of \(\$ 2,000\). The company uses the straight-line method of depreciation and has a June 30 fiscal yearend. Analyze each of the following independent scenarios.

a. Before depreciation expense is recorded for the fiscal year ended June 30, 2009, Hallmark decides that the computer system will last until June 30, 2011 but that it will be worth only \(\$ 800\) at that time.

b. Before depreciation expense is recorded for the fiscal year ended June 30, 2009, Hallmark decides that the computer system will last only until June 30, 2010. The company anticipates the value of the system at that time will still be \(\$ 2,000\).

c. Before depreciation expense is recorded for the fiscal year ended June 30, 2009, Hallmark decides that the computer system will last until June 30, 2011 but that it will be worth only \(\$ 1,500\) at that time.

d. Before depreciation expense is recorded for the fiscal year ended June 30, 2009, Hallmark's computer experts decide that the system can be used until June 30, 2013 if the company spends \(\$ 1,000\) on upgrades. However, the estimated salvage value at that time would be 0 . Hallmark decides to follow the experts' advice and upgrade the computer system.

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Calculate the amount of depreciation expense related to the computer system Hallmark will report on its income statement for the fiscal year ended June 30, 2009, for each scenario.