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

Learn more about this topic:

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Methods of Depreciation

from Business 110: Business Math

Chapter 6 / Lesson 1
18K

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