Question

The Target Corporation purchased a larger freezer to hold its frozen foods and frozen desserts that it sells on a regular basis. The cost of the equipment was $50,000 and is expected to be useful for only 10 years. At the end of the 10 year period, Target should be able to salvage $5,000. Target paid $1,000 to have the item shipped to the San Marcos location. It paid an additional $2,500 to modify the equipment to fit in the store. Target also paid $1,500 to ensure the equipment would work with the electrical system. All costs related to the equipment were purchased on account. Target uses the straight-line depreciation method.
What is the depreciation expense for the equipment in Year 1?

Answer 1

Answer:

The answer is: $5,000

Explanation:

To determine the total cost of the freezer we have to add the equipment cost plus all the other installation costs.

• total cost = equipment + shipping + modifications + electrical installation
• total cost = $50,000 + $1,000 + $2,500 + $1,500 = $55,000

Target will use the straight line depreciation method during a ten year period. To determine the total amount to depreciate we must subtract the salvage value from the total cost of the equipment.

• $55,000 - $5,000 = $50,000

Then we divide by the total number of useful years

• $50,000 / 10 years = $5,000 per year