Question

The Washington Company purchased a new machine for $200,000. In addition to the invoice cost of the unit they had to pay $5,000 in freight, $10,000 in wiring, and installation labor of $10,000. The company estimates the machine will have a ten year life and the salvage can be sold for $25,000 at the end of ten years. Compute the straight line depreciation for years one and two.

Answer 1

The answers are $20,000 and $17,500.

Step-by-step explanation:

Straight Line Depreciation is a calculation made to find the amount that an asset's value has reduced over a certain period of time.

The formula for it is
`((Cost Of Asset) - (Salvage Value))/(Asset Life)`.

The cost of the asset is $200,000 but for the first year there are also the freight, wiring and installation costs which apply just once and they come up to $25,000 in total.

So the depreciation for year one is going to be
`(225,000 - 25,000)/(10)` which is $20000.

The depreciation for year two is going to be
`(200,000 - 25,000)/(10)` which is $17,500.

I hope this answer helps.