Question

Machinery was purchased for $85,000. Freight charges amounted to $3,500 and there was a cost of $10,000 for building a foundation and installing the machinery. It is estimated that the machinery will have a $15,000 salvage value at the end of its 5-year useful life. Depreciation expense each year using the straight-line method will bea. $19,700b. $16,700c. $14,300d. $14,000

Answer 1

Answer:

b. $16,700

Explanation:

The computation of the depreciation expense under the straight-line method is shown below:

= (Original cost - residual value) ÷ (useful life)

= ($98,500 - $15,000) ÷ (5 years)

= ($83,500) ÷ (5 years)  

= $16,700

The original cost is computed below:

= Original cost  of machinery + freight charges + cost of building a foundation and  installing the machinery

= $85,000 + $3,500 + $10,000

= $98,500

In this method, the depreciation is same for all the remaining useful life