Archer Company purchased equipment in January of 2000 for $90,000. The equipment
ID: 2435280 • Letter: A
Question
Archer Company purchased equipment in January of 2000 for $90,000. The equipment was being depreciated on the straight-line method over an estimated useful life of 20 years, with no salvage value. At the beginning of 2010, when the equipment had been in use for 10 years, the company paid $15,000 to overhaul the equipment. As a result of this improvement, the company estimated that the useful life of the equipment would be extended an additional 5 years. What should be the depreciation expense recorded for this equipment in 2010.a. $3,000
b. $4,000
c. $4,500
d. $5,500
Explanation / Answer
Archer Company purchased equipment in January of 2000 for $90,000. The equipment was being depreciated on the straight-line method over an estimated useful life of 20 years, with no salvage value. At the beginning of 2010, when the equipment had been in use for 10 years, the company paid $15,000 to overhaul the equipment. As a result of this improvement, the company estimated that the useful life of the equipment would be extended an additional 5 years. What should be the depreciation expense recorded for this equipment in 2010. b. $4,000 Cost $90,000 Useful lie 20 years Depreciation for 10 years 45000 Book value in 201 =45000 Balance useful life 10 years Amount spent on overhaul 15000 Book value increased to 60,000 Life of machine increased 5 years Total remaining life 15 years Depreciation for 2010 = 60,000 ÷ 15 = $4,000
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