Samson Manufacturing Company, a calendar-year company, purchased a machine for $65,000 on January 1, 20X0. At the date of purchase, Samson incurred the following additional costs:

Loss on sale of old machinery $1,000

Freight-in 500

Installation cost 2,000

Testing costs prior to regular operation 300

The machine’s estimated salvage value was $5,000, and Samson estimated it would have a useful life of 20 years with depreciation being computed on the straight-line method. In January 20X2, accessories costing $3,600 were added to the machine to reduce its operating costs. These accessories neither prolonged the machine’s life nor provided any additional salvage value.

Required:

What should Samson record as depreciation expense for 2011?

Samson record as depreciation expense for 2011 an amount of $3,340

Explanation:

In order to calculate What should Samson record as depreciation expense for 2011 we would have to calculate first the cost to capitalize as follows:

Cost to capitalize=purchase price+freight+installation+testing

=$65,000+$500+$2,000+$3,000

=$67,800

Depreciation expense for 2010=cost of machinery-residual value/life of machinery

Depreciation expense for 2010=$67,800-$5,000/20

Depreciation expense for 2010=$3,140

Hence, Book value=cost of machinery - (cost of machinery-residual value) / life of machinery)) * period of asset used

=$67,800 - ($62,800-$5,000) / 20)) * 2

=$61,250

Therefore, depreciation expense for 2011=$61,250+$3,600-$5,000/18

depreciation expense for 2011=$3,340