Calculating Depreciation Expense
A copy machine was acquired at the beginning of 1998 for $12,000. It had a salvage value of $2,000 and an estimated life of five years.
Required
a. Calculate the annual straight-line (SL) depreciation.
b. Assume that at the beginning of the year 2000, the copy machine’s total useful life is estimated to be eight years. What is the effect of this change in estimated useful life on net income each year?
c. What is the copy machine’s book value at the end of 1998? 1999? 2000?
d. Using the original data, assume that at the beginning of 2001 it is determined that there will be zero salvage at the end of the fifth year. Assume that the original estimated useful life is still five years.
i. What is the effect of this change in estimated salvage value on net income in each year?
ii. What is the copy machine’s book value at the end of the year 1998? 1999? 2000?
e. Using the original data, assume that both the change in estimated useful life and the change in salvage value occur as stated.
i. What is the effect on net income in 2000 and 2001?
ii. What is the copy machine’s book value at the end of each year?
iii. Do these effects seem so important that they would be separately disclosed in the notes? Why?
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