Garrison Company purchased a tooling machine on January 3, 2003 for $600,000.The machine was being amortized on the straight-line method over an estimated useful life of ten years, with no residual value.At the beginning of 2010, the company paid $150,000 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 (15 years total).What should be the depreciation expense recorded for the machine in 2010?

Question

Quizplus · Accepted Answer

The machine's original cost is $600,000 with a 10-year life, so annual depreciation is $60,000. By 2010, 7 years have passed, so $420,000 is depreciated, leaving a book value of $180,000. Adding the $150,000 overhaul cost, the new book value is $330,000. With a new useful life of 8 years (15 total - 7 already passed), the annual depreciation is $330,000 / 8 = $41,250.

Garrison Company Purchased a Tooling Machine on January 3, 2003