Question

Blossom Company purchased a machine with a list price of $168000. They were given a 10% discount by the manufacturer. They paid $1000 for shipping and sales tax of $6500. Blossom estimates that the machine will have a useful life of 10 years and a salvage value of $40000. If Blossom uses straight-line depreciation, annual depreciation will be

Answer 1

Answer:

$11,870

Explanation:

Given:

List price = $168,000

Discount = 10%

Shipping cost = $1,000

Sales tax = $6,500

Salvage value = $40,000

Useful life = 10 years

Now,

Purchasing price = List price - Discount

Purchasing price = $168,000 - [10% × $168,000]

Purchasing price = $168,000 - $16,800

Purchasing price = $151,200

Costs that are directly related to the purchase of asset are capitalized.

Thus,

Cost = Purchasing price + Shipping costs + Sales tax

Cost = $151,200 + $1,000 + $6,500

Cost = $158,700

Now,  

Annual straight line depreciation = $\frac{Cost-Residual Value}{Useful life}$  

Annual straight line depreciation = $\frac{158,700 - 40,000}{10}$  

Annual straight line depreciation = $\frac{118,700}{10}$  

Annual straight line depreciation = $11,870