On January 1, the Matthews Band pays $65,800 for sound equipment. The band estimates it will use this equipment for four years and after four years it can sell the equipment for $2,000. Matthews Band uses straight-line depreciation but realizes at the start of the second year that this equipment will last only a total of three years. The salvage value is not changed.

$15,950

$15,950

Explanation:

Here is the full question :

On January 1, the Matthews Band pays $65,800 for sound equipment. The band estimates it will use this equipment for four years and after four years it can sell the equipment for $2,000. Matthews Band uses straight-line depreciation but realizes at the start of the second year that this equipment will last only a total of three years. The salvage value is not changed. Compute the revised depreciation for both the second and third years.

The step to answering this question :

1. calculate the depreciation expense using the initial useful life

2. calculate the book value for year 2

3. calculate the depreciation expense for year 2 and 3 using the revised useful life and year 2 book value

Straight line depreciation expense = (Cost of asset - Salvage value) / useful life

1. ($65,800  - $2000) / 4 = $15,950

Book value = $65,800 - $15,950 = $49,850

($49,850 - $2000) / 3 = $15,950

The depreciation expense in year 2 and 3 would be $15,950

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