Question

Carla Vista Co. purchased a machine with a list price of $144000. They were given a 5% discount by the manufacturer. They paid $1000 for shipping and sales tax of $4000. Carla Vista estimates that the machine will have a useful life of 10 years and a salvage value of $60000. If Carla Vista uses straight-line depreciation, annual depreciation will be _________.

Answer 1

Annual depreciation will be $ 8180

Explanation:

To calculate the annual depreciation, we use the following formula:

annual depreciation = depreciable rate x depreciable asset cost

where

depreciable asset cost = purchased cost - estimated salvage value

depreciable rate = 1 : lifespan

in the question given, we know

machine price list = $144000

discount = 5% * $144000 = $7200

shipping fee = $1000

sales tax = $4000

thus, purchased cost = price list - discount + shipping fee + sales tax

= $144000 - $7200 + $1000 + $4000

= $141800

based on the information given in the question,

estimated salvage value = $60000

So,

depreciable asset cost = $141800 - $60000

= $81800

next, calculate depreciable rate

the lifespan of the machine is 10 years. therefore

depreciable rate = 1 : 10

= 0.1

Now. we can determine the annual depreciation, as below

annual depreciation = $81800 x 0.1

= $8180