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Plummer Industries purchased a machine for $43,800 and is depreciating it with the straight-line method over a life of 8 years, using a residual value of $3,000. At the beginning of the sixth year, an extraordinary repair was made costing $7,500, the estimated useful life was extended to 15 years, and no change was made to the estimated residual value. Calculate depreciation expense for year 6.

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osaruevbuomwan

Answer:

$2,580

Explanation:

Depreciation = (Cost - Residual Value)/ Useful life

Yearly depreciation = ($43-800 - $3000)/8 = $5100

At the end of Year 5, total depreciation would be = $5100 X 5 = $25,500

Net book value at the end of year 5 = $43,800 - $25,500 = $18,300

Year 6, the extra ordinary repair that extended the useful life would be capitalized. Book value = $18,300 + $7,500 = $25,800

As 5 years have been expended, the remaining useful life would be 15-5 = 10 years

Depreciation expense year 6 = $25,800/10 = $2,580

anthougo

The Depreciation Expense for year 6 is $2,280.

Data and Calculations:

Cost of machine in year 1 = $43,800

Estimated useful life = 8 years

Residual value = $3,000

Depreciable amount = $40,800

Annual depreciation expense based on straight-line method = $5,100 ($40,800/8)

Accumulated depreciation at the end of year 5 = $25,500 ($5,100 x 5)

Net book value of machine at the end of year 5 = $18,300 ($43,800 - $25,500)

Extraordinary repair at the beginning of year 6 = $7,500

Book value of machine at the beginning of year 6 = $25,800 ($18,300 + $7,500)

Re-estimated useful life = 15 years

Remaining useful life = 10 years (15 - 5)

Depreciable amount = $22,800 ($25,800 - $3,000)

Annual depreciation expense for remaining useful life based on straight-line method  = $2,280 ($22,800/10)

Depreciation expense for year 6 = $2,280

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