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27 November, 10:41

Ivanhoe company purchased machinery with a list price of $88000. They were given a 7% discount by the manufacturer. They paid $400 for shipping and sales tax of $4700. Ivanhoe estimates that the machinery will have a useful life of 10 years and a residual value of $25000. If Ivanhoe uses straight-line depreciation, annual depreciation will be

A) $6194

B) $5684

C) $8694

D) $6152

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  1. 27 November, 11:26
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    A) $6194

    Explanation:

    Price before discount = $88,000

    discount rate = 7%

    Amount of discount = 7% * $88,000 = $6,160

    Price after discount = Price before discount - Amount of discount

    = $88,000 - $6,160

    Price after discount = $81,840 (this is the price included in depreciation)

    Items included in total cost of machinery;

    Price of machinery after discount = $81,840

    Shipping cost = $400

    Sales tax = $4,700

    Therefore, total cost is therefore = $81,840 + $400 + $4,700 = $86,940

    Depreciation per year = (Total cost of the machinery - salvage value) / useful life

    = (86,940 - 25,000) / 10

    = 61,940/10

    = 6,194

    Therefore annual depreciation = $6,194
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