On January 1, Year 1, Poultry Processing Company purchased a freezer and related installation equipment for $42,000.
Question:
On January 1, Year 1, Poultry Processing Company purchased a freezer and related installation equipment for $42,000. The equipment had a three-year estimated life with a $3,000 salvage value. Straightline depreciation was used. At the beginning of Year 3, Poultry Processing revised the expected life of the asset to four years rather than three years. The salvage value was revised to $2,000.
Required
Compute the depreciation expense for each of the four years, Year 1 through Year 4.
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...
Step by Step Answer:
Depreciation Expense Year 1 42000 3000 39000 39000 3 13000 Year 2 Same as Year 1 13000 Year 3 Cost ...View the full answer
Introductory Financial Accounting for Business
ISBN: 978-1260299441
1st edition
Authors: Thomas Edmonds, Christopher Edmonds
Related Video
Depreciation of non-current assets is the process of allocating the cost of the asset over its useful life. The cost of the asset includes the purchase price, any additional costs incurred to bring the asset to its current condition and location, and any other costs that are directly attributable to the asset. The useful life of the asset is the period over which the asset is expected to be used by the company. To calculate the depreciation, companies use different methods such as straight-line, declining-balance, sum-of-the-years\'-digits, units-of-production, and group depreciation. The chosen method will depend on the type of asset, the company\'s accounting policies, and the accounting standards that are applicable. The straight-line method allocates an equal amount of the asset\'s cost over its useful life, while the declining-balance method calculates depreciation at a fixed rate, typically double the straight-line rate, but the amount of depreciation decreases over time. The sum-of-the-years\'-digits method is similar to the declining-balance method, but the rate of depreciation is calculated using a fraction that is based on the useful life of the asset. It\'s important to note that the depreciation expense will be recorded on the company\'s income statement and the accumulated depreciation will be recorded on the company\'s balance sheet. This will decrease the value of the asset on the balance sheet over time.
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