Joe's quik shop bought equipment for $25,000 on january 1, 2006. joe estimated the useful life to be 5 years with no salvage value, and the straight-line method of depreciation will be used. on january 1, 2007, joe decides that the business will use the equipment for a total of 6 years. what is the revised depreciation expense for 2007? a. $4,000b. $2,000c. $3,333d. $5,000

option (a) 4,000

Explanation:

Data provided in the question:

cost of the equipment bought by Joe = $25,000

Estimated useful life = 5 years

Salvage value = $0

therefore,

The annual depreciation =

= $5,000 per year

Thus,

Book value on January 1, 2007

= Cost on January 1, 2006 - Depreciation till January 1, 2007

= $25,000 - ( $5,000 × 1 )

= $20,000

Now,

The revised useful life is 6 years on January 1, 2007 but the 1 year has already been over

Thus,

remaining useful life = 6 - 1 = 5 years

Thus,

The revised depreciation =

= $4,000 per year

Hence,

The correct answer is option (a) 4,000

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