Acquisition Cost and Depreciation Reveille, Inc., purchased Machine #204 on Apri

Question

Acquisition Cost and Depreciation Reveille, Inc., purchased Machine #204 on April 1, 2016, and placed the machine into production on April 3, 2016. The following information is relevant to Machine #204: Price $60,000 Freight-in costs 2,500 Preparation and installation costs 3,900 Labor costs during regular production operation 10,200 Credit terms 2/10, n/30 Total productive output 138,500 units The company expects that the machine could be used for 10 years, after which the salvage value would be zero. However, Reveille intends to use the machine only 8 years, after which it expects to be able to sell it for $9,800. The invoice for Machine #204 was paid April 10, 2016. The number of units produced in 2016 and 2017 was 23,200 and 29,000, respectively. Reveille computes depreciation expense to the nearest whole month.

Explanation / Answer

Answer: Acquistion cost=Purchase Price+Freight-in costs+Preparation and installation costs

=60000+2500+3900

=66400

Dep in 2016=(66400/138500)*23200

=11122.60

Dep in 2017=(66400/138500)*29000

=13903.24

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