The Bromley Company purchased a tooling machine in 2004 for $120,000.The machine was being depreciated on the straight-line method over an estimated useful life of 20 years,with no salvage value.At the beginning of 2014,when the machine had been in use for ten years,the company paid $20,000 to overhaul the machine.As a result of this improvement,the company estimated that the useful life of the machine would be extended an additional five years.What would be the depreciation expense recorded for the machine in 2014?
A) $4,000
B) $5,333
C) $6,000
D) $7,333

Question

Quizplus · Accepted Answer

The original useful life of the machine was 20 years, and it has been in use for 10 years. Hence, the remaining useful life before the overhaul was 10 years.

After the overhaul, the useful life has been extended by 5 years, making the new total useful life 25 years.

To calculate the depreciation for 2014, we will use the straight-line method:

Depreciation expense per year = (Cost of the machine - Salvage value) / Useful life

Salvage value is $0, and the cost of the machine was $120,000.

Using the original useful life, depreciation expense per year would be: 
($120,000 - $0) / 20 years = $6,000 per year.

However, since the useful life has been extended by 5 more years, we need to adjust the depreciation expense accordingly.

Depreciation expense per year = ($120,000 - $0) / 25 years = $4,800 per year.

The overhaul occurred at the beginning of 2014, so we will only account for the depreciation for the remaining 12 months in 2014. Thus, 
Depreciation expense for 2014 = ($4,800 / 12 months) x 12 months = $4,800.

However, we also need to account for the depreciation of the first 10 years, which would be: 
($120,000 - $0) / 20 years x 10 years = $60,000.

Therefore, the total depreciation expense for 2014 would be: 
$4,800 + ($60,000 / 20 years) = $4,800 + $3,000 = $7,800.

Dividing this by 12 months, we get the monthly depreciation expense for 2014: 
$7,800 / 12 months = $650 per month.

Hence, the depreciation expense recorded for the machine in 2014 would be closest to $5,333 (rounded off to the nearest dollar).

The Bromley Company Purchased a Tooling Machine in 2004 for $120,000.The