Water Company purchased a bottling machine on October 1, 2009 for $250,000.The estimated useful life is 25 years and they are using straight-line amortization.During 2011, they spent $46,000 on the machine to double its capacity and $5,000 on routine cleaning.What should the amortization expense be at September 30, 2011? The company's year end is September 30.
A)$10,000
B)$30,000
C)$12,200
D)$12,000

Question

Quizplus · Accepted Answer

The amortization expense for the year ending September 30, 2011, is calculated based on the original cost of the machine ($250,000) over its useful life (25 years), which equals $10,000 per year. The $46,000 spent to double the machine's capacity is a capital expenditure that should be added to the asset's cost base, extending its total cost to $296,000. However, this expenditure does not affect the amortization expense for the year ending September 30, 2011, because it occurred during 2011 and the asset's new cost base and revised amortization (if any) would be considered in full in subsequent years. The $5,000 spent on routine cleaning is an expense but does not affect the calculation of amortization. Therefore, the amortization expense remains at $10,000 for the year ending September 30, 2011.

Water Company Purchased a Bottling Machine on October 1, 2009