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Snyder, Inc. purchased equipment for $400,000 which was estimated to have a useful life of 10 years and a salvage value of $20,000. At the beginning of year 5, Snyder changed it’s estimate to a total of 8 years from the date of purchase with a salvage value of $10,000. What is the book value of the equipment at the end of year 5?

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tutorAnne

Answer:book value at end of year 5=$188,500.

Explanation:

Depreciation per year=   (Cost-Salvage value)/Useful life

=(400,000-20,000)/10=   $38000 per year

Book value after 4 years, Beginning of year 5= Cost - depreciation x number of years

$400,000   - (38000 x 4)=   $248,000

Depreciation per year now= (Cost-Salvage value)/Useful life

($248000-$10,000)/4  =   $59,500 per year.

Therefore, book value at end of year 5=Book value at the beginning of year 5 - depreciation

$248,000-  $59,500 )=  $188,500.

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