Question

Minor company installs a machine in its factory at the beginning of the year at a cost of $135,000. the machine's useful life is estimated to be 5 years, or 300,000 units of product, with a $15,000 salvage value. during its first year, the machine produces 64,500 units of product. determine the machines' first year depreciation under the straight-line method.

Answer 1

To determine what the depreciation of an asset using straight line method, the formula to be used is:

(Initial cost of machine – salvage value) divided by estimated useful life

So in this problem:

Initial Cost - $135000

Salvage Value – $15000

Estimated Useful Life – 5 years

Plug that in the formula

Annual depreciation = ($135000 - $15000) / 5

= $120000/ 5

= $24,000

The first year depreciation for the machine is $24000 because the company bought it in the beginning of the year. (So there is no need to divide this by 12 months)

To record this:

Depreciation Expense $24000

Accumulated Depreciation $24000