Able Towing Company purchased a tow truck for $60,000 on January 1, 2015. It was originally depreciated on a straight-line basis over 10 years with an estimated salvage value of $12,000. On December 31, 2017, before adjusting entries had been made, the company decided to change the remaining estimated life to 4 more years as of January 1, 2017, and the salvage value was adjusted to $2,000. How much is depreciation expense for 2017?

$4,800

$15,000

$6,000

$12,100

Answer:

Revised Depreciation = (Book Value on the date of Change – Revised Salvage Value) / Revised Useful Life

Book Value on the date of Change = Cost – Accumulated Depreciation on the date of Change

Depreciation per Year = (Cost – Salvage Value) / Useful Life
Depreciation per Year = (60,000 – 12,000) / 10
Depreciation per Year = $4,800

Accumulated Depreciation on the date of Change = Depreciation per year * 2
Accumulated Depreciation on the date of Change = $4,800 * 2 = $9,600

Book Value on the date of Change = $60,000 - $9,600
Book Value on the date of Change = $50,400

Revised Depreciation = (50,400 – 2,000) / 4
Revised Depreciation = 48,400 / 4
Revised Depreciation = $12,100

Therefore, Depreciation Expense for the year 2017 is $12,100.