[Kairos]

The answer is b) due to the carrying value being $59,000 and subtracting out 5000 and then dividing by 6. How is the carrying value determined?

X Company had been depreciating a machine with an original cost of $125,000 and a salvage value of $15,000 over its estimated useful life of 10 years using straight-line depreciation. At the beginning of the seventh year, X Company determined that the machine will actually remain in use for a total of 12 years and will have a salvage value of $5,000. How much depreciation will X Company recognize in the seventh year?

a

$10,000

b

$9,000

c

$7,333

d

$9,167

[taxgeek83]

Carrying value is the cost of the asset minus depreciation/amortization taken. In this case, carrying value on the straight-line basis is calculated as:

125,000 – 15,000 salvage value = 110,000 depreciable base

110,000/10 years = 11,000 depreciation/year

6 years have gone by, so depreciation taken is 11,000 x 6 = 66,000

Carrying value is cost minus depreciation taken = 125,000 – 66,000 = 59,000

[Author]

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