Question

Angst company purchased equipment in january of 2004 for $200,000. the equipment was being depreciated on the straight-line method over an estimated useful life of 20 years, with no salvage value. at the beginning of 2014, when the equipment had been in use for 10 years, the company paid $25,000 to overhaul the equipment. as a result of this improvement, the company estimated that the useful life of the equipment would be extended an additional 5 years. what should be the depreciation expense recorded for this equipment in 2014?
a. $5,000
b. $8,333
c. $10,000
d. $6,667

Answer 1

Using straight-line method, the correct answer should be: c. $10,000  

Here’s the formula:  

Straight line depreciation = (original costs of asset – salvage value)/estimated asset life  

$200,000 / 20 years = $10,000  

Since the problem states that there is no salvage value, you just have to divide the purchase price of the equipment by the estimated useful life.