Concord Towing Company purchased a tow truck for $173000 on January 1, 2020. It was originally depreciated on a straight-line basis over 10 years with an assumed salvage value of $35000. On December 31, 2022, before adjusting entries had been made, the company decided to change the remaining estimated life to 4 years (including 2022) and the salvage value to $6000. What was the depreciation expense for 2022?

$14000.

$34850.

$17500.

$43250.

January,1 2020

Cost of the Truck

$173,000

Salvage value

$35,000

Useful life

10 Years

So Depreciation under Straight line method is calculated as= (Cost of the truck - Salvage value at the end)/ Useful life of the Asset.

Depreciation of Truck per year=

($173,000-$35000)/10 years

ie.,                  =

$          13,800

per year

Depreciation for the respective years as below:

Truck Value at Beginning

Depreciation

Truck Value at End

2020

$173,000

$13,800

$159,200

2021

$159,200

$13,800

$145,400

2022

$145,400

ESTIMATED LIFE & SALVAGE Value Changed

Here the estimated life of truck and salvage value changed on 31-12-2022 with effect from the January 2022.

Cost of the Asset on January,1 2022

$145,400

The New Estimated life

4 Years

New Salvage values at end

$6,000

Depreciation of Truck per year=

($145400-$6000)/ 4 years

ie.,                  =

$          34,850

Therefore the Depreciation expense for 2022 is $ 34850