Question

On January 1, Year 1, Vaughan Company purchased equipment for $276,000. Freight charges amounted to $12,000 and there was a cost of $24,000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $60,000 salvage value at the end of its 12-year useful life. Depreciation expense each year using the straight-line method will be:_______.a. $19,700.

b. $16,700.
c. $14,300.
d. $14,000.

Answer 1

Depreciation expense each year will be $21,000

Step-by-step explanation:

As the capitalized cost of an asset is the cost incurred to make the asset usable for the operations of the business.

Cost of Asset = Purchase price + Freight charges + Installation cost

Cost of Asset = $276,000 + $12,000 + $24,000

Cost of Asset = $312,000

Now $312,000 is the cost that is used for the depreciation purpose.

First we need to calculate the depreciable value

Depreciable value = Cost of Asset - Salvage value

Depreciable value = $312,000 - $60,000

Depreciable value = $252,000

Now Use follow formula to calculate the straight line depreciation expense for the year

Depreciation for theyear = Depreciable value / Useful life

Depreciation for theyear = $252,000 / 12 years

Depreciation for theyear = $21,000

As the given options are not correct as per given data. The solution made according to the given data.