[slingerlax1]

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?

[fuyu1017]

For Q1, the book value at the end of year 5 would be simply after 5 year depreciation. And the per-year depreciation would be equal to (480,000-30,000)/8 = 56,250. Thus, after 5 years, the book value would be 198750.

For Q2, as the total useful life has shorten from 8 years to 7 years, and the residual value has changed from 30000 to 20000, thus, the calculation for the remaining depreciation would be changed. The calculation for the depreciation in the 6th and 7th year would be (198750 - 20000) / 2 = 89375.

For Q3, I am not sure with what it is asking. Sorry~