Question

Equipment was purchased for $152000. Freight charges amounted to $5000 and there was a cost of $14000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $38000 salvage value at the end of its 5-year useful life. Depreciation Expense each year using the straight-line method will be A. $26600. B. $34200. C. $26000. D. $22800.

Answer 1

The correct answer is A.

Step-by-step explanation:

Giving the following information:

Equipment was purchased for $152000. Freight charges amounted to $5000 and there was a cost of $14000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $38000 salvage value at the end of its 5-year useful life.

First, we need to calculate the total cost of the equipment.

Total cost= purchasing price + freight + cost required to put the asset to work

Total cost= 152,000 + 5,000 + 14,000= $171,000

Now, we can determine the depreciation cost:

Annual depreciation= (original cost - salvage value)/estimated life (years)

Annual depreciation= (171,000 - 38,000)/5= $26,600