Question

Mather Company purchased equipment on January 1, 2018 at a total invoice cost of $336,000; additional costs of $6,000 for freight and $30,000 for installation were incurred. The equipment has an estimated salvage value of $12,000 and an estimated useful life of five years. The amount of accumulated depreciation at December 31, 2019 if the straight-line method of depreciation is used is:

$148,800.


$129,600.


$144,000.


$132,000.

Answer 1

The accumulated depreciation at 31 December 2019 is $144000

Step-by-step explanation:

When recording the purchase of a fixed asset, the asset should be recognized at cost at which the asset is purchased plus all the necessary costs that are incurred to bring the asset to the location and in the condition necessary to use as required and intended by the management.

The equipment purchased by Mather should be recorded as,

Cost of equipment = 336000 + 6000 + 30000 = $372000

The freight and installation are non recurring and necessary expenses to bring the asset to the location and in the condition for use as intended by management. So, these expenses are capitalized.

The straight line depreciation charges a constant depreciation expense every year through out the useful life of the asset.

Straight line depreciation = (Cost - Salvage Value) / estimated useful life

Straight line depreciation per year = (372000 - 12000) / 5

Straight line depreciation per year = $72000

So, the accumulated depreciation at 31 December 2019 is,

Accumulated depreciation = 72000 + 72000 = $144000