Pearson Corporation purchased a machine with an initial cost of $80,000, a resid

Question

Pearson Corporation purchased a machine with an initial cost of $80,000, a residual value of $5,000, and an estimated useful life of 10 years. At the beginning of the fifth year, Pearson Corporation spent $10,000 for an extraordinary repair. Following the repair, Pearson Corporation estimated that the machine had a remaining useful life of 8 years, and that the residual value was unchanged. Calculate depreciation expense on the machine for the fifth year, assuming that Pearson Corporation uses the straight-line method.

Explanation / Answer

book value at year 4 (80,000-5000)/10 7500 cost 80,000 Accumulated depreciation (7500*4) 30000 Book value at end of year 4 50,000 At the start of year five book value 50,000 add:Extraordinary repairs 10,000 60,000 less Residual value -5000 amount to be deprciated 55,000 hence depreciation expense for year five = 55000/8 6875 answer

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