Question

Plummer Industries purchased a machine for $43,800 and is depreciating it with the straight-line method over a life of 8 years, using a residual value of $3,000. At the beginning of the sixth year, an extraordinary repair was made costing $7,500, the estimated useful life was extended to 15 years, and no change was made to the estimated residual value. Calculate depreciation expense for year 6.

Answer 1

Answer:

$2,580

Explanation:

Depreciation = (Cost - Residual Value)/ Useful life

Yearly depreciation = ($43-800 - $3000)/8 = $5100

At the end of Year 5, total depreciation would be = $5100 X 5 = $25,500

Net book value at the end of year 5 = $43,800 - $25,500 = $18,300

Year 6, the extra ordinary repair that extended the useful life would be capitalized. Book value = $18,300 + $7,500 = $25,800

As 5 years have been expended, the remaining useful life would be 15-5 = 10 years

Depreciation expense year 6 = $25,800/10 = $2,580