Question
On December 31, 2014, before the books were closed, the management and accountants of Madrasa Inc. made the following determinations about three pieces of equipment.
Additional data:
1. Equipment A was purchased January 2, 2011. It originally cost $460,000 and, for depreciation purposes, the straight-line method was originally chosen. The asset was originally expected to be useful for 10 years and have a zero salvage value. In 2014, the decision was made to change the depreciation method from straight-line to sum-of-the-years’ digits, and the estimates relating to useful life and salvage value remained unchanged.
2. Equipment B was purchased January 3, 2010. It originally cost $262,500 and, for depreciation purposes, the straight-line method was chosen. The asset was originally expected to be useful for 15 years and have a zero salvage value. In 2014, the decision was made to shorten the total life of this asset to 9 years and to estimate the salvage value at $2,500.
3. Equipment C was purchased January 5, 2010. The asset’s original cost was $111,100, and this amount was entirely expensed in 2010. This particular asset has a 10-year useful life and no salvage value. The straight-line method was chosen for depreciation purposes.
Explanation / Answer
1) $ 234,806
2)