On January 1, 2019, Romero Company purchased equipment for $320,000. The equipme
ID: 2556285 • Letter: O
Question
On January 1, 2019, Romero Company purchased equipment for $320,000. The equipment was assigned an $18,000 residual value and a 16-year life. Romero Company will use the straight-line method to depreciate the equipment. On January 1, 2026, Romero Company spent $41,000 to overhaul the equipment. This capital expenditure resulted in Romero Company changing the life of the equipment from 16 years to 30 years and adjusting the residual value to be $7,500 at the end of the 30 years. Calculate the book value of the equipment at December 31, 2028.
Explanation / Answer
Depreciation amount per year = (320000-18000)/16 =$18,875
Book value as on Jan 1, 2026= 320000-7*18875 =$187875
Capital expenditures=$41,000
Revised book value on Jan 1, 2026 =$228875
Revised salvage value =$7500 at the end.of 30 year
Remaining life =23 years
Depreciable amount =$9625
Book value as on Dec 31,2028=
228875-3*9625 =$200000