Question

Equipment was purchased for $300,000. Freight charges amounted to $14,000 and there was a cost of $40,000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $60,000 salvage value at the end of its 5-year useful life. Depreciation expense each year using the straight-line method will be________.

Answer 1

The annual depreciation expense for the equipment using the straight-line method is $58,800, calculated by subtracting the salvage value from the total asset cost and dividing by the useful life of the asset.

Step-by-step explanation:

The calculation of depreciation using the straight-line method involves the following steps:

1. Sum up the initial cost of the equipment, freight charges, and installation costs to determine the total cost of the asset.
2. Subtract the salvage value from the total asset cost to find the depreciable base.
3. Divide the depreciable base by the useful life of the asset to find the annual depreciation expense.

In this case:

• Total cost of the asset = Purchase price + Freight charges + Installation costs = $300,000 + $14,000 + $40,000 = $354,000
• Depreciable base = Total cost of the asset - Salvage value = $354,000 - $60,000 = $294,000
• Annual depreciation expense = Depreciable base / Useful life = $294,000 / 5 years = $58,800 per year

Therefore, the annual depreciation expense for the equipment using the straight-line method will be $58,800.

Answer 2

$59,200

Step-by-step explanation:

Purchased price of Equipment = $300,000

Freight charges = $14,000

Cost of foundation = $40,000

Salvage value = $60,000

Useful life = 5 years

Total asset cost = $300,000 + $14,000 + $40,000

= $354,000

Annual depreciation = ($354,000 - $60,000)/5

= $296,000/5

= $59,200

Depreciation expense each year using the straight-line method will be $59,200