A is corrent. The requirement is to determine the amount of depreciation expense in year 5. According to ASC Topic 250, a change in the estimated life of an asset is accounted for on a prospective basis. Depreciation expense in years 1 though 4 is calculated as $12,000 ÷ 5 years = $2,400 per year. At the end of year 4, the book value of the asset is $2,400 and this amount is depreciated over the newly estimated remaining life of 4 years. Therefore, the depreciation expense in year 5 would be $2,400 ÷ 4 remaining years = $600. Therefore, this answer is correct.
B is incorrect. According to ASC Topic 250, a change in the estimated life of an asset is accounted for on a prospective basis. Depreciation expense in years 1 though 4 is calculated as $12,000 ÷ 5 years = $2,400 per year. At the end of year 4, the book value of the asset is $2,400 and this amount is depreciated over the newly estimated remaining life of 4 years. Therefore, the depreciation expense in year 5 would be $2,400 ÷ 4 remaining years = $600.
B is incorrect. According to ASC Topic 250, a change in the estimated life of an asset is accounted for on a prospective basis. Depreciation expense in years 1 though 4 is calculated as $12,000 ÷ 5 years = $2,400 per year. At the end of year 4, the book value of the asset is $2,400 and this amount is depreciated over the newly estimated remaining life of 4 years. Therefore, the depreciation expense in year 5 would be $2,400 ÷ 4 remaining years = $600.
D is incorrect. According to ASC Topic 250, a change in the estimated life of an asset is accounted for on a prospective basis. Depreciation expense in years 1 though 4 is calculated as $12,000 ÷ 5 years = $2,400 per year. At the end of year 4, the book value of the asset is $2,400 and this amount is depreciated over the newly estimated remaining life of 4 years. Therefore, the depreciation expense in year 5 would be $2,400 ÷ 4 remaining years = $600.
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