On January 3, 2010, Hippo Corp.purchased a machine for $600,000.The machine was being depreciated using the straight-line method over an estimated useful life of ten years, with no residual value.At the beginning of 2017, 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).The depreciation expense for 2017 should be
A)$41,250.
B)$50,000.
C)$60,000.
D)$66,000.

Question

Quizplus · Accepted Answer

The machine's original cost was $600,000 with a useful life of 10 years, resulting in an annual depreciation of $60,000. By the beginning of 2017, 7 years of depreciation had been recorded, leaving a book value of $180,000. After the $150,000 overhaul, the new book value is $330,000, and the remaining useful life is 8 years (3 original years + 5 additional years). The new annual depreciation is $330,000 / 8 = $41,250.