Apex Company purchased a tooling machine on January 3, 2007, for $30,000. The ma

Question

Apex Company purchased a tooling machine on January 3, 2007, for $30,000. 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 2017, when the machine had been in use for 10 years, the company paid $5,000 to overhaul it. As a result of this improvement, the company estimated that the remaining useful life of the machine was now 15 years. Required: What should be the depreciation expense recorded for this machine in 2017? (Round your answer to the nearest whole dollar amount.) Depreciation expense

Explanation / Answer

Under the straight line method, depreciation expense each year = (cost - salvage value) / useful life

= ($30,000 - 0) / 20

= $1,500

Accumulated depreciation at the beginning of 2017 = $1,500 per year * 10 years

= $15,000

Carrying value at the beginning of 2017 = Cost - Accumulated depreciation

= $30,000 - $15,000

= $15,000

As the overhaul increased the useful life of the asset, it is considered as a capital expenditure which increases the carrying value of the asset.

Carrying value of the asset = $15,000 + $5,000 = $20,000

Depreciation expense in 2017 = Carrying value of the asset / remaining useful life

= $20,000 / 15

= 1,333

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