Question

Strong Metals Incorporated purchased a new stamping machine at the beginning of the year at a cost of $1,425,000. The estimated residual value was $75,000. Assume that the estimated useful life was five years, and the estimated productive life of the machine was 300,000 units. Actual annual production was as follows:

Calculate the annual depreciation using the straight-line method.

a)$270,000
b)$285,000
c)$300,000
d)$315,000

Answer 1

Using the straight-line method, the annual depreciation for the stamping machine is calculated to be $270,000 by subtracting its residual value from the cost and then dividing by the useful life.

Step-by-step explanation:

To calculate the annual depreciation using the straight-line method, subtract the machine's residual value from its cost and then divide by the useful life of the asset.

The cost of the stamping machine is $1,425,000 and the residual value is $75,000. The estimated useful life is 5 years. Therefore, the annual depreciation is calculated as follows:

Annual Depreciation = (Cost - Residual Value) / Useful Life
Annual Depreciation = ($1,425,000 - $75,000) / 5 years
Annual Depreciation = $1,350,000 / 5 years
Annual Depreciation = $270,000

The correct answer is a) $270,000.