Question

Vaughn Company purchased a computer for $9,200 on January 1, 2019. Straight-line depreciation is used, based on a 5-year life and a $1,150 salvage value. On January 1, 2021, the estimates are revised. Vaughn now feels the computer will be used until December 31, 2022, when it can be sold for $575.

Required:
Compute the 2021 depreciation (Round answer to decimal 2)

Answer 1

Answer:

Depreciation on 2021 is $2,702.50

Explanation:

First, let's compute depreciation expense from January 1, 2019 to December 31, 2020 using the original cost and salvage value.

STRAIGHT LINE METHOD FORMULA :

( Cost of an asset - Salvage value) / life of an asset

($9,200 - $1,150) - 5 years

= $1,610 (annual depreciation) x 2 years (January 1 2019 to December 31, 2020)

= $3,220

Second, Compute the carrying amount on January 1, 2021. Deduct accumulated depreciation from January 01, 2019 to December 31, 2020 from the cost of the computer.

$9,200 - $3,220 = $5,980

FINALLY, depreciate using the new remaining life of an asset and new salvage value.

New life remaining = 2 years

New salvage value = $575

($5,980 - $575) / 2 years = $2,702.50 (answer)