An asset was purchased for $120,000 on january 1, year 1 and originally estimated to have a useful life of 10 years with a residual value of $10,000. at the beginning of the third year, it was determined that the remaining useful life of the asset was only 4 years with a residual value of $2,000. calculate the third-year depreciation expense using the revised amounts and straight-line method.

a.
$25,000

b.
$11,000

c.
$24,000

d.
$24,500

c.  $24,000

Explanation:

In this question first, we have to compute the two year depreciation and its book value which is shown below:

For 1st year:

= (Original cost - residual value) ÷ estimated life in years

= ($120,000 - $10,000) ÷ 10 years

= $11,000

In the straight-line method, the depreciation expense would remain the same over its useful life i.e 10 years

After two years depreciation, the book value after second year would be

= Original cost - 1st year depreciation - 2nd year depreciation

= $120,000 - $11,000 - $11,000

= $98,000

Now the depreciation expense for the third year would be

= ($98,000 - $2,000) ÷ 4 years

= $24,000

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