Question

A company purchased a machine on January 1 of the current year for $750,000. Calculate the annual depreciation expense for each year of the machine's life (estimated at 5 years or 20,000 hours, with a salvage value of $75,000 ). During the machine's 5 -year life its hourly usage was: 3,000;4,000;5,000;5,000; and 3,000 hours.

Answer 1

To calculate the annual depreciation expense for the machine, we subtract the salvage value from the purchase price and then divide by its useful life in years, which equals $135,000 per year using the straight-line method.

Step-by-step explanation:

The student is asking how to calculate the annual depreciation expense for a machine which has a useful life based on years and hours of usage. The cost of the machine is $750,000 with an estimated salvage value of $75,000, and a lifespan of 5 years or 20,000 hours. The machine's actual usage over the 5-year life was different each year.

To calculate depreciation using the straight-line method, you first subtract the salvage value from the purchase price to determine the total depreciable amount: $750,000 - $75,000 = $675,000. Then, divide this by the useful life of the machine in years: $675,000 ÷ 5 years = $135,000 per year. This is the annual depreciation expense under the straight-line method.