Concept #1: Change in Depreciation Estimate for Useful Life and Salvage Value

Practice: Roller Coaster Tycoons purchased a concession stand for $360,000. Initially, the concession stand was depreciated straight-line over a ten year useful life with no residual value. After six years in use, RCT assessed that the concession stand would be useful for only two more years. What is depreciation expense in year 7?

Practice: 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?

Additional Problems
On January 1, 2002, ABC Company purchased equipment for $100,000. The equipment was assigned an estimated life of 10 years and a residual value of $10,000. On January 1, 2005, ABC Company decided the life of the equipment should be revised from 10 to 15 years. Calculate the depreciation expense recorded on the equipment for 2005  assuming ABC Company uses the straight line depreciation method.
On January 1, 2006, The Wichita Eagle purchased a new printing press at a cost of $50,000. The estimated residual value is $10,000, and the estimated useful lie is 10 years. The Wichita Eagle uses the straight-line depreciation method. On January 1, 2008, The Eagle’s management estimates that the press only has 3 years of estimated useful remaining. What is the balance in the Accumulated Depreciation account on December 31, 2008?  a. $18,667 b. $21,333 c. $22,000 d. $24,000
On January 1, year 1, L Company purchased an asset that cost $80,000. The asset had an expected useful life of five years and an estimated salvage value of $15,000. L Company uses the straight-line method for the recognition of depreciation expense. At the beginning of the fourth year of usage, the company revised its estimated salvage value to $8,000. Based on this information, the depreciation expense to be recognized for year 4 is: a. $12,800 b. $12,500 c. $33,600 d. $16,500
F Company purchased equipment on January 1 for $82,000. The machines are estimated to have a 5-year life and a salvage value of $4,000. The company uses the straight-line depreciation method. If the original expected life remained the same (i.e., 5-years), but at the beginning of year 4, the salvage value was revised to $8,000, the annual depreciation expense for each of the remaining years would be: a. $5,440. b. $27,200. c. $13,600. d. $14,800.