Depreciation of equipment and the ending book value and how it affects balance sheets
Company A acquired diagnostic equipment for $480,000. The equipment had an estimated useful life of eight years and an estimated residual value of $30,000. The company uses the straight-line depreciation method. After five years, management determined that the equipment was in danger of becoming obsolete. During year 6, the estimated useful life was revised to a total of seven years with a new estimated residual value of $20,000.
1. What is the book value of the equipment that would be reported on the balance sheet at the end of year 5?
2. What is the new amount of depreciation expense that would be reported on the year 6 and year 7 income statements?
3. What does the need for revision of the depreciation estimates indicate that a poor job of estimating was originally done?