The Donut Stop acquired equipment for $18,000. The company uses straight-line depreciation and estimates a residual value of $3,600 and a four-year service life. At the end of the second year, the company estimates that the equipment will be useful for four additional years, for a total service life of six years rather than the original four. At the same time, the company also changed the estimated residual value to $1,500 from the original estimate of $3,600. Required: Calculate how much The Donut Stop should record each year for depreciation in years 3 to 6.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
The Donut Stop acquired equipment for $18,000. The company uses straight-line
Required:
Calculate how much The Donut Stop should record each year for depreciation in years 3 to 6.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
