Financial Accounting

Learn the toughest concepts covered in your Financial Accounting class with step-by-step video tutorials and practice problems.

Long Lived Assets

Change in Estimate: Depreciation

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Change in Depreciation Estimate for Useful Life and Salvage Value

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Problem

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?

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Problem

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?