Weston Company purchased a tooling machine on January 3, 2000 for $500,000.The machine was being depreciated on the straight-line method over an estimated useful life of 10 years, with no salvage value.At the beginning of 2007, the company paid $125,000 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 5 years (15 years total).What should be the depreciation expense recorded for the machine in 2007?

Question

Quizplus · Accepted Answer

The machine's original cost is $500,000 with a 10-year life, so annual depreciation is $50,000. By 2007, 7 years have passed, so $350,000 has been depreciated, leaving a book value of $150,000. Adding the $125,000 overhaul cost gives a new book value of $275,000. With an extended life of 8 more years (15 total), the new annual depreciation is $275,000 / 8 = $34,375.

Weston Company Purchased a Tooling Machine on January 3, 2000