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17 July, 18:34

Samson Manufacturing Company, a calendar-year company, purchased a machine for $65,000 on January 1, 20X0. At the date of purchase, Samson incurred the following additional costs:

Loss on sale of old machinery $1,000

Freight-in 500

Installation cost 2,000

Testing costs prior to regular operation 300

The machine’s estimated salvage value was $5,000, and Samson estimated it would have a useful life of 20 years with depreciation being computed on the straight-line method. In January 20X2, accessories costing $3,600 were added to the machine to reduce its operating costs. These accessories neither prolonged the machine’s life nor provided any additional salvage value.

Required:

What should Samson record as depreciation expense for 2011?

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Answers (1)
  1. 17 July, 21:52
    0
    Samson record as depreciation expense for 2011 an amount of $3,340

    Explanation:

    In order to calculate What should Samson record as depreciation expense for 2011 we would have to calculate first the cost to capitalize as follows:

    Cost to capitalize=purchase price+freight+installation+testing

    =$65,000+$500+$2,000+$3,000

    =$67,800

    Depreciation expense for 2010=cost of machinery-residual value/life of machinery

    Depreciation expense for 2010=$67,800-$5,000/20

    Depreciation expense for 2010=$3,140

    Hence, Book value=cost of machinery - (cost of machinery-residual value) / life of machinery)) * period of asset used

    =$67,800 - ($62,800-$5,000) / 20)) * 2

    =$61,250

    Therefore, depreciation expense for 2011=$61,250+$3,600-$5,000/18

    depreciation expense for 2011=$3,340
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