Question

Tomko Company purchased machinery with a list price of $96,000. They were given a 10% discount by the manufacturer. They paid $600 for shipping and sales tax of $4,500. Tomko estimates that the machinery will have a useful life of 10 years and a residual value of $30,000. If Tomko uses straight-line depreciation, annual depreciation will be:
A. $6,150.

B. $6,108.

C. $9,150.

D. $5,640

Answer 1

Answer:

$6150.

Explanation:

Given:

Tomko Company purchased machinery with a list price of $96,000.

10% discount by the manufacturer.

They paid $600 for shipping and sales tax of $4,500.

Tomko estimates that the machinery will have a useful life of 10 years and a residual value of $30,000.

If Tomko uses straight-line depreciation, annual depreciation will be ?

Solution:

List price of machinery = $96,000

Discount amount = 10% of 96,000

                             $=\frac{10}{100} \times96000\\ \\ =\frac{960000}{100} \\ \\ =9600$

Shipping cost = $600

Sales tax = $4,500

Actual cost of machinery = List price - Discount amount + Shipping cost + Sales tax

Actual cost of machinery = $96000 - $9600 + $600 + $4500

                                          = $91,500

Residual value = $30,000

Useful life = 10 years

As we know:

$Annual\ depreciation=\frac{Asset\ Cost-Residual\ value}{Useful\ life\ of\ the\ asset}$

                                  $=\frac{91500-30000}{10} \\ \\ =\frac{61500}{10} \\ \\= 6150$

Thus, annual depreciation of machinery of Tomko Company will be $6150.