Marjorie Corporation acquired a building on January 1, 2019, for $800,000. The building had an estimated useful life of 20 years and an estimated salvage value of $29,000. On January 1, 2021, Marjorie Corporation determined that the building could only be used for another 10 years and there would be no salvage value. Compute depreciation expense for the year ending December 31, 2021, if Marjorie Corporation uses straightminusline depreciation.

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peaches888 peaches888 · Answer 1 · 2020-04-02T18:39:41+02:00

Answer:

$72,290

Explanation:

Straight-line depreciation is when the same amount is depreciated every year over the life of the asset. It is calculated as:

(Cost of asset - salvage value) / number of useful years

In the initial depreciation method, depreciation for 2019 =

($800,000 - $29000) / 20 = $38550

The depreciation expense for 2020 is also $38550.

In January 2021, the depreciation changed. In order to account for this, the following formula is used:

(Cost - Revised Residual Value - Accumulated Depreciation) / Revised Remaining Useful Life

For this year, it would be :

($800,000 - 0 - $77100*) / 10 = $72,290

(*This includes the addition of the depreciation of the asset in the previous years. i.e. $38550 x 2)

Thus, depreciation expense for the year ending 31, December 2021 is $72,290