Question

Holt Company purchased a computer for $8,000 on January 1, 2019. Straight-line depreciation is used, based on a 5-year life and a $1,000 salvage value. In 2021, the estimates are revised. Holt now feels the computer will be used until December 31, 2022, when it can be sold for $500?

Answer 1

Answer:

$2,350

Explanation:

On January 1, 2019

Cost of computer = $8,000

Useful life = 5 years

Salvage value = $1,000

Annual Depreciation = (8000 - 1000)/5

                                   = 7000/5

                                   = $1,400

In 2021 estimates are revised i.e after 2 years of use

Carrying value = 8000 - (2 × 1400)

                         = 8000 - 2800

                         = $5,200

Remaining Useful life after revised estimate = 2 years

Revised salvage value = 500

Annual depreciation = (5200 - 500)/2

                                  = 4700/2

                                  = $2,350