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26 August, 09:09

On January 1, Year 1, an entity acquires a new machine with an estimated useful life of 20 years for $100,000. The machine has an electrical motor that must be replaced every five years at an estimated cost of $20,000. Continued operation of the machine requires an inspection every four years after purchase; the inspection cost is $10,000. The company uses the straight-line method of depreciation. What is the depreciation expense for Year 1

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  1. 26 August, 10:38
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    The answer is $11,500

    Explanation:

    Depreciation here be done separately or in components.

    The formula for depreciation is:

    (Cost - residual value) / useful life.

    First component:

    A new machine for $100,000 and useful life is 20 years.

    Depreciation = $100,000/20years

    = $5,000

    Second component:

    An electrical motor for $20,000 and useful life is 5 years.

    Depreciation = $20,000/5years

    = $4,000

    Third component:

    Inspection $10,000 and useful life is 4 years.

    Depreciation = $10,000/4years

    = $2,500

    Therefore, the depreciation expense for Year 1 is

    =$5,000 + $4,000 + $2,500

    =$11,500
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