Question

Blossom Company purchased machinery with a list price of $88000. They were given a 10% discount by the manufacturer. They paid $400 for shipping and sales tax of $4900. Blossom estimates that the machinery will have a useful life of 10 years and a residual value of $30000. If Blossom uses straight-line depreciation, annual depreciation will be___________.

Answer 1

Answer:

$5,450

Explanation:

Data provided in the question:

List price of the machinery = $88,000

Discount offered = 10%

Amount of discount = 10% of $88,000

= 0.1 × $88,000

= $8,800

Shipping paid = $400

Sales tax = $4,900

Useful life = 10 years

Residual value = $30,000

Now,

Total cost of the machine = List price - Discount + Shipping + sales tax

= $88,000 - $8,800 + $400 + $4,900

= $84,500

Annual depreciation using straight line method is given as:

= $\frac{\textup{Total cost - Residual value}}{\textup{Useful life}}$

= $\frac{\textup{84,500 -30,000 }}{\textup{10}}$

= $5,450