Helm Corporation purchased a machine with an initial cost of $80,000, a residual value of $5,000, and an estimated useful life of 10 years. At the beginning of the fifth year, Helm spent $10,000 for an extraordinary repair. Following the repair, Helm estimated that the machine had a remaining useful life of 8 years, and that the residual value was unchanged. Calculate depreciation expense on the machine for the fifth year, assuming that Helm uses the straight-line method.
A) $5,625
B) $7,500
C) $6,875
D) $7,250

Question

Quizplus · Accepted Answer

- Straight-line depreciation = (initial cost - residual value) / useful life
- Depreciation expense per year before repair = ($80,000 - $5,000) / 10 years = $7,500/year
- Machine had been in use for 4 years already, so accumulated depreciation before repair = 4 years * $7,500/year = $30,000
- After repair, estimated remaining useful life = 8 years, so depreciation expense per year after repair = ($80,000 - $5,000 - $30,000 - $10,000) / 8 years = $6,875/year
- Depreciation expense for the fifth year = $6,875 (since the repair was made at the beginning of the fifth year)

Helm Corporation Purchased a Machine with an Initial Cost of $80,000