On January 1, 2017, Evers Company purchased the following two machines for use i
ID: 2604681 • Letter: O
Question
On January 1, 2017, Evers Company purchased the following two machines for use in its production process. Machine A: The cash price of this machine was $52,000. Related expenditures included: sales tax $3,100, shipping costs $200, insurance during shipping $120, installation and testing costs $50, and $150 of oil and lubricants to be used with the machinery during its first year of operations. Evers estimates that the useful life of the machine is 5 years with a $5,500 salvage value remaining at the end of that time period. Assume that the straight-line method of depreciation is used. Machine B: The recorded cost of this machine was $180,000. Evers estimates that the useful life of the machine is 4 years with a $10,200 salvage value remaining at the end of that time period.
Explanation / Answer
Answer
[ Cost of Asset capitalised (less) Salvage Value ] / Useful life in years
All costs till installation of assets are capitalised unless they are refundable.
Cash Price
52000
capitalized
Sales Tax
3100
capitalized
Shipping cost
200
capitalized
Insurance
120
capitalized
Installation cost
50
capitalized
Oil
150
Not capitalized
Total Cost of Asset capitalized
55470
Salvage Value
5500
Useful Life
5
Annual SLM depreciation
9994
[55470-5500]/5
Total Cost of Asset capitalized
180000
Salvage Value
10200
Useful Life
4
Annual SLM depreciation [180000-10200]/4
42450
Cash Price
52000
capitalized
Sales Tax
3100
capitalized
Shipping cost
200
capitalized
Insurance
120
capitalized
Installation cost
50
capitalized
Oil
150
Not capitalized
Total Cost of Asset capitalized
55470
Salvage Value
5500
Useful Life
5
Annual SLM depreciation
9994
[55470-5500]/5
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