Klein Co.purchased machinery on January 2, 2001, for $440,000.The straight-line method is used and useful life is estimated to be 10 years, with a $40,000 salvage value.At the beginning of 2007 Klein spent $96,000 to overhaul the machinery.After the overhaul, Klein estimated that the useful life would be extended 4 years (14 years total), and the salvage value would be $20,000.The depreciation expense for 2007 should be

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Quizplus · Accepted Answer

The original annual depreciation was ($440,000 - $40,000) / 10 = $40,000. By 2007, 6 years of depreciation have been recorded, leaving a book value of $440,000 - ($40,000 * 6) = $200,000. After the overhaul, the new book value is $200,000 + $96,000 = $296,000. The new depreciation is ($296,000 - $20,000) / 8 = $34,500 per year.

Klein CoPurchased Machinery on January 2, 2001, for $440,000