Miller Manufacturing purchased a packaging machine for $300,000 on January 2,2012.The seller assumed that the machine would be functional for at least five years with no salvage value.In 2015,Miller decided that the machine would last an additional five years with a salvage value of $20,000.The company uses straight-line depreciation for all assets.What amount of depreciation should Miller record in 2015 and following years?

Question

Quizplus · Accepted Answer

The correct answer is B: $24,000. The machine was purchased for $300,000 and has a salvage value of $20,000. The machine was originally estimated to have a useful life of 5 years, but this was later revised to 10 years. This means that the machine has a depreciable base of $280,000 ($300,000 - $20,000). The annual depreciation expense is $28,000 ($280,000 / 10 years). However, since the machine has already been used for 3 years, the depreciation expense for 2015 and following years will be $24,000 ($28,000 x 7 years / 10 years).

Miller Manufacturing Purchased a Packaging Machine for $300,000 on January