Water Company purchased a bottling machine on October 1, 2015 for $250,000. The estimated useful life is 25 years and they are using straight-line depreciation. During 2017, they spent $46,000 on the machine to double its capacity and $5,000 on routine cleaning. What should the depreciation expense be at September 30, 2017? The company's year end is September 30.

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Quizplus · Accepted Answer

The initial cost of the machine is $250,000 with a useful life of 25 years, resulting in an annual depreciation of $10,000 ($250,000 / 25). By September 30, 2017, two years of depreciation have occurred, totaling $20,000. The $46,000 spent to double capacity is a capital expenditure, increasing the machine's value to $296,000. The new annual depreciation is $11,840 ($296,000 / 25). For the year ending September 30, 2017, the depreciation is $12,000 ($10,000 for the first year and $11,840 for the second year, rounded to the nearest hundred).

Water Company Purchased a Bottling Machine on October 1, 2015