Question

Blossom Company purchased a machine with a list price of $168000. They were given a 10% discount by the manufacturer. They paid $1000 for shipping and sales tax of $6500. Blossom estimates that the machine will have a useful life of 10 years and a salvage value of $40000. If Blossom uses straight-line depreciation, annual depreciation will be

Answer 1

$11,870

Step-by-step explanation:

Given:

List price = $168,000

Discount = 10%

Shipping cost = $1,000

Sales tax = $6,500

Salvage value = $40,000

Useful life = 10 years

Now,

Purchasing price = List price - Discount

Purchasing price = $168,000 - [10% × $168,000]

Purchasing price = $168,000 - $16,800

Purchasing price = $151,200

Costs that are directly related to the purchase of asset are capitalized.

Thus,

Cost = Purchasing price + Shipping costs + Sales tax

Cost = $151,200 + $1,000 + $6,500

Cost = $158,700

Now,

Annual straight line depreciation =
`(Cost-Residual Value)/(Useful life)`

Annual straight line depreciation =
`(158,700 - 40,000)/(10)`

Annual straight line depreciation =
`(118,700)/(10)`

Annual straight line depreciation = $11,870