Question

In 2010, Norbert Incorporated bought a new tooling machine for $45,000. Norbert estimated that the machine had a useful life of 15 years with no salvage value, and it decided to depreciate the machine using the straight-line method. In January 2020, after the machine had been in use for 10 years, Norbert paid $12,000 to completely overhaul the machine. It did so with the expectation that the overhaul would extend the machine’s useful life by an additional 5 years. Given this information, Norbert should record a 2020 depreciation expense of _______ for the machine.

Answer 1

Norbert should record at 2020 depreciation expense of $2,700 for the machine

Step-by-step explanation:

The depreciable base can be calculated as follows;

depreciable base=acquisition cost-salvage value

where;

acquisition cost=$45,000

salvage value=$0

replacing;

depreciable base=45,000-0=$45,000

Annual depreciation expense=depreciable base/useful life

annual depreciation expense=45,000/15=$3,000

accumulated depreciation after 10 years=3,000×10=$30,000

New net book value=acquisition cost-accumulated depreciation+overhaul cost

New machine value=(45,000-30,000+12,000)=$27,000

New depreciation base=new machine value-salvage value

where;

new machine value=$27,000

salvage value=$0

replacing;

New depreciation base=27,000-0=$27,000

New Annual depreciation expense=new depreciation base/useful life

where;

new depreciation base=$27,000

useful life=5+5=10 years

replacing;

New Annual depreciation expense=27,000/10=$2,700

Norbert should record at 2020 depreciation expense of $2,700 for the machine