The Bucol Company purchased a tooling machine in 2001for $120,000. The machine was being depreciated on the straight-line method over an estimated useful life of 20 years, with no salvage value. At the beginning of 2011, when the machine had been in use for ten years, the company paid $20,000 to overhaul the machine. As a result of this improvement, the company estimated that the useful life of the machine would be extended an additional five years. What would be the depreciation expense recorded for the above machine in 2011?
A) $4,000
B) $5,333
C) $6,000
D) $7,333

Question

Quizplus · Accepted Answer

The correct answer is B.The original cost of the machine was $120,000, and it was being depreciated over 20 years, so the annual depreciation expense was $6,000 ($120,000 / 20). After the overhaul, the estimated useful life of the machine was extended by 5 years, so the new total useful life is 25 years. The remaining book value of the machine at the beginning of 2011 was $60,000 ($120,000 - $6,000 x 10), so the new annual depreciation expense is $2,400 ($60,000 / 25). However, the company also paid $20,000 to overhaul the machine, so the total depreciation expense for 2011 is $4,400 ($2,400 + $20,000).

The Bucol Company Purchased a Tooling Machine in 2001for $120,000