Tops Co. purchases equipment for $12,000 and has been using straight-line depreciation, estimating a 5-year life and $500 salvage value. At the beginning of the third year, Tops decides to use the equipment for a total of 6-years with no salvage value. Compute the revised depreciation for the third year. Multiple choice question. $2,875 $1,850 $1,250 $2,375

Annual depreciation= $1,850

Explanation:

Giving the following formula:

Purchase price= $12,000

Salvage value= $500

Useful life= 5 years

First, we need to calculate the annual depreciation and accumulated depreciation:

Annual depreciation= (original cost - salvage value)/estimated life (years)

Annual depreciation= (12,000 - 500) / 5

Annual depreciation= 2,300

Accumulated depreciation (2 years)= 2,300*1= 4,600

Now, we can determine the annual depreciation with a 4 more years of useful life:

Book value= 12,000 - 4,600= 7,400

useful life= 4 years more

Annual depreciation= 7,400/4

Annual depreciation= $1,850

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