Plummer Industries purchased a machine for $43,800 and is depreciating it with the straight-line method over a life of 8 years, using a residual value of $3,000. At the beginning of the sixth year, an extraordinary repair was made costing $7,500, the estimated useful life was extended to 15 years, and no change was made to the estimated residual value.

The answer is $2,280

Explanation:

The formula for straight line depreciation method is:

(Cost - residual value) : number of useful years.

($43,800 - $3,000) : 8

=$5,100

Depreciation for 5 years will now be: $5100 x 5 = $25,500.

The carrying amount of the machine at the beginning of the sixth year will be:

$43,800 - $25,500

=$18,300.

The extraordinary repair of $7,500 will be capitalized. So we now have:

$18,300 + $7,500

=$25,800.

With this, the estimated useful life is now 15 years but we need to subtract the 5 years that had been used from 15 years. The new useful life is now 10years (15years - 5 years)

Therefore, depreciation for the sixth year is:

($25,800 - $3,000) : 10

=$2,280

Tge residual values is $2,580

Explanation:

Given

Cost = $43,800

Time/Life = 8 years

Residual value = $3,000.

First, we calculate the depreciation.

Depreciation is calculated as follows;

Depreciation = (Cost - Residual) / Time

Depreciation = ($43,800 - $3,000) / 8

Depreciation = $40,800/8

Depreciation = $5,100

Then we calculate the total depreciation before the beginning of year 6

Total Depreciation = $5,100. * (6 - 1)

Total Depreciation = $5,100 * 5

Total Depreciation = $25,500

So, the net value before year 6 is

Net Value = Cost - Total Depreciation

Net Value = $43,800 - $25,500

Net Value = $18,300

At the beginning of the sixth year, an extraordinary repair was made costing $7,500, so, extended repair value = $7,500 + $18,300 = $25,800

If the estimated useful life was extended to 15 years, then useful life = 15 - 5 = 10 years

Depreciation Expense Year 6 = Extended Repair Value/Useful Life

= $25,800/10

= $2,580

Hence, depreciation = $2,580