# Ace Company purchased a machine valued at $325,000 on August 1. The equipment has an estimated... ## Question: Ace Company purchased a machine valued at$325,000 on August 1. The equipment has an estimated useful life of six years or 2.5 million units. The equipment is estimated to have a salvage value of $8,700. Assuming the straight-line method of depreciation, what is the amount of depreciation expense that needs to be recorded at the end of the first year? ## Depreciation Depreciation is the expense associated with the regular use or wear and tear of assets. Common methods of computing depreciation are straight-line, sum of the years, units-of-production and double declining method. ## Answer and Explanation: To compute for the amount of depreciation expense that needs to be recorded at the end of the first year we need to compute for the annual depreciation first, as follows: Annual depreciation = (Cost - Salvage value) / Estimated useful life Annual depreciation = ($325,000 - $8,700) / 6 years Annual depreciation =$52,716.67

Depreciation for the year would be from August 1 to December 31 or 5 months over 12 months as follows:

 Annual depreciation $52,716.67 Months allocation 5/12 Depreciation for the first year$21,965.28 