Question

In: Accounting

Machinery was purchased for $480000 on January 1, 2022. Freight charges amounted to $13000 and there...

Machinery was purchased for $480000 on January 1, 2022. Freight charges amounted to $13000 and there was a cost of $38000 for building a foundation and installing the machinery. It is estimated that the machinery will have a $65000 salvage value at the end of its 5-year useful life. What is the amount of accumulated depreciation at December 31, 2023 if the straight-line method of depreciation is used?

A.$186400.

B.$93200.

C.$85800.

D.$171600.

Expert Solution

Answer: A) $186,400

Explanation:

Depreciation under Straight line Method= (Cost of Asset - Salvage value) / Estimated useful life

Given,

Salvage Value = $65,000

Estimated Useful life= 5 years

Purchase Price= $480,000

Freight charges= $13,000

Installation cost = $38,000

Cost of Asset includes all the cost incurred for the purpose of making the asset ready for its intended use. It includes purchase price, transportation cost, installation cost, commission etc.

Therefore, In the given case, Cost of Asset = Purchase Price + Freight charges + Installation cost

= 480,000 + 13,000 + 38,000

= $531,000

Depreciation under Straight Line Method = (Cost of Asset - Salvage value) / Estimated useful life

= (531,000 - 65,000) / 5 years

= 466,000 / 5

= $93,200 per year

Number of Years completed as on December 31,2023 (Jan 1,2022 to Dec 31,2023)= 2 Years

Therefore, Accumulated Depreciation = Annual depreciation* Number of years completed

= 93,200 * 2 years

= $186,400

ekkarill92 answered 1 year ago

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