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29 July, 10:25

On January 1, 20X2, X Company made modifications to an asset used in its manufacturing operations in order to extend its useful life. The asset had an original cost of $30,000 and accumulated depreciation of $12,000, with a remaining useful life of 5 years. As a result of the modification, which cost $6,000, the remaining useful life was increased to 8 years. If X Company uses straight-line depreciation, in 20X2, X Company:

Will recognize repairs and maintenance expense of $6,000 and depreciation expense of $2,250.

Will recognize repairs and maintenance expense of $6,000 and depreciation expense of $3,600.

Will capitalize the cost of the modification and will recognize depreciation expense of $3,000.

Will capitalize the cost of the modification and will recognize depreciation expense of $4,800.

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  1. 29 July, 13:04
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    Will capitalize the cost of the modification and will recognize depreciation expense of $3,000.

    Explanation:

    Provided information, we have the following details.

    Original value of asset = $30,000

    Accumulated depreciation = $12,000

    Therefore carrying value of asset = $30,000 - $12,000 = $18,000

    Remaining life of asset = 5 years

    When an additional modification is done, cost of modification = $6,000

    Revised life of machine due to modification = 8 years

    Thus, the modification cost will also be capitalized.

    Depreciation each year = ($18,000 + $6,000) / 8 = $3,000 each year.

    Therefore, correct option is

    c. Will capitalize cost of repairs and will charge depreciation of $3,000 each year
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