Question

Cullumber Company purchased a new machine on October 1, 2022, at a cost of $90,880. The company estimated that the machine has a salvage value of $8,640. The machine is expected to be used for 72,700 working hours during its 8-year life. Compute the depreciation expense under the straight-line method for 2022 and 2023, assuming a December 31 year-end.

Answer 1

Year 2022 = $2,570

Year 2023 = $10,280

Step-by-step explanation:

Original cost = $90,880

Salvage value = $8,640

Number of useful years = 8

Using the straight line method ;

Annual depreciation = (Original cost - salvage value) ÷ Number of useful years

Annual depreciation = ($90,880 - $8640) ÷ 8

Annual depreciation = $82,240 ÷ 8

Annual depreciation = $10,280

2023 depreciation value = $10,280

However, the machine was purchased in October 1, 2022:

Therefore, 2022 depreciation = 3 months;

Monthly depreciation = $10,280 ÷ 12 = $856.6667

Therefore, 2022 depreciation :

$856.6667 × 3 = $2,569.999

=$2,570

Answer 2

The workings are made below;

Step-by-step explanation:

Depreciation Expense for 2022 =($90,880-$,8,640)/8=$10,280*3/12=$2,570

Depreciation Expense for 2023=$10,280 ($90,880-$8,640)/8

The depreciation for 2022 is calculated on pro rata basis from the date of purchase till December 31,2022.

Where as depreciation for 2023 is charged on full year basis as the asset was used for the whole year.