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Hey guys I understand how formulas and other stuff work here, but I have problems with understanding the context (I am an international applicant). Please help:))
Question CPA-06957
Four years ago on January 2, Randall Co. purchased a long-lived asset. The purchase price of the asset was
$250,000, with no salvage value. The estimated useful life of the asset was 10 years. Randall used the straight-line
method to calculate depreciation expense. An impairment loss on the asset of $30,000 was recognized on December
31 of the current year. The estimated useful life of the asset at December 31 of the current year did not change. What
amount should Randall report as depreciation expense in its income statement for the next year?
a. $22,000
b. $30,000
c. $25,000
d. $20,000 (correct. Actually I got this wrong because I knew my understanding was wrong, I kinda figured this number out, but still am so confused! )
So based on my understanding, let’s say four years ago is “Year 1”, then current year would be “Year 5”. Therefore, on 1/1/Y5, the carrying amount would be 150,000 (250,000-25,000*4), so at the end of Year 5 the carrying value would be 125,000. Plus there is an impairment loss of 30,000 at the end of the Year 5, now the carrying value is 95,000. And there’s five years left, so the depreciation expense would be 19,000 per year.
I am sure I got wrong on understanding… Please correct me đŸ™‚
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