Rivera Company purchased a tooling machine on January 3, 2004 for $500,000.The machine was being depreciated on the straight-line method over an estimated useful life of 10 years, with no residual value.At the beginning of 2011, 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 2011?

Question

Quizplus · Accepted Answer

The machine's original cost was $500,000 with a 10-year life, so annual depreciation was $50,000. By 2011, 7 years of depreciation had been recorded, leaving a book value of $150,000. The overhaul cost of $125,000 is added to this, making a new book value of $275,000. With a new useful life of 8 years remaining (15 total - 7 already depreciated), the new annual depreciation is $34,375 ($275,000 / 8 years).

Rivera Company Purchased a Tooling Machine on January 3, 2004