Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

8. Long Lived Assets

Change in Estimate: Depreciation

Financial Accounting

8. Long Lived Assets

Change in Estimate: Depreciation

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Multiple Choice

Changing Minds Company purchased a building for $480,000 and depreciated on a straight-line basis over 40 years, estimating a residual value of $60,000. The company depreciated the building for twenty years and then estimated that the building would only remain useful for another twelve years. At this time, the company also re-evaluated the residual value at $30,000. What will be depreciation expense in year 21?

$15,000

$17,500

$20,000

$21,000

None of the above

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Verified step by step guidance

Calculate the original annual depreciation expense using the straight-line method. The formula is: (Cost - Residual Value) / Useful Life. Initially, this is ($480,000 - $60,000) / 40 years.

Determine the accumulated depreciation after 20 years by multiplying the original annual depreciation expense by 20.

Calculate the book value of the building at the end of year 20 by subtracting the accumulated depreciation from the original cost of the building.

Reassess the remaining useful life and residual value. The new useful life is 12 years, and the new residual value is $30,000.

Compute the new annual depreciation expense for year 21 and onwards using the formula: (Book Value at end of year 20 - New Residual Value) / New Useful Life. This will give you the depreciation expense for year 21.