Meca Concrete Purchased a Mixer on January 1, 2016, at a Cost

question 162

Essay

Meca Concrete purchased a mixer on January 1, 2016, at a cost of $45,000. Straight-line depreciation for 2016 and 2017 was based on an estimated eight-year life and $3,000 estimated residual value. In 2018, Meca revised its estimate and now believes the mixer will have a total service life of only six years, and that the residual value will be only $2,000.
Required:
Compute depreciation for 2018 and 2019.

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Definitions:

Initial Investment

The amount of money spent to start a project, purchase assets, or acquire a business.

Net Cash Inflow

The amount of cash that a company generates from its operational, investment, and financing activities, after accounting for cash outflows.

Payback Period

The time required for an investment to generate cash flows sufficient to recoup the initial investment cost.

Rate of Return

A measure of the profit or loss on an investment over a specific period, expressed as a percentage of the investment's initial cost.