Question

In 2007, 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 2017, 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 2017 depreciation expense of _______ for the machine.

A. $2,700
B. $2,850
C. $3,000
D. $2,500

Answer 1

Norbert should record a 2017 depreciation expense of $2,000 for the machine.

Step-by-step explanation:

To calculate the depreciation expense for 2017, we need to determine the remaining useful life of the machine after the overhaul. The original estimated useful life of the machine was 15 years, and 10 years have already passed. Therefore, the remaining useful life after the overhaul is the original estimated useful life minus the years already passed, plus the additional years gained from the overhaul. So, the remaining useful life after the overhaul is 15 - 10 + 5 = 10 years.

The depreciation expense for the machine is calculated by dividing the cost of the machine by its useful life. The cost of the machine is $45,000. Therefore, the annual depreciation expense is $45,000 divided by 15 years, which is $3,000 per year.

Since only 10 years of the machine's useful life remain after the overhaul in 2017, the depreciation expense for 2017 is $3,000 multiplied by 10/15, which is $2,000. Therefore, Norbert should record a 2017 depreciation expense of $2,000 for the machine.