In January,Fanning Corporation entered into a contract to acquire a new machine for its factory.The machine,which had a cash price of $400,000,was paid for as follows: Prior to the machine's use,installation costs of $10,000 were incurred.The machine has an estimated useful life of ten years and an estimated salvage value of $10,000.What should Hunter record as depreciation expense for the first year under the straight-line method?
A) $38,100
B) $39,100
C) $40,000
D) $41,000

Question

In January,Fanning Corporation entered into a contract to acquire a new machine for its factory.The machine,which had a cash price of $400,000,was paid for as follows:  Prior to the machine's use,installation costs of $10,000 were incurred.The machine has an estimated useful life of ten years and an estimated salvage value of $10,000.What should Hunter record as depreciation expense for the first year under the straight-line method?
A) $38,100 
B) $39,100 
C) $40,000 
D) $41,000

Quizplus · Accepted Answer

The depreciable cost of the machine is $400,000 - $10,000 (salvage value) = $390,000. 
The annual depreciation expense under the straight-line method is calculated as (depreciable cost / useful life). 
Therefore, the depreciation expense for the first year is $390,000 / 10 = $39,000. 
Adding the $10,000 installation costs, the total depreciation expense for the first year is $39,000 + $1,000 = $40,000. 
Therefore, choice C is the correct answer.

In January,Fanning Corporation Entered into a Contract to Acquire a New