Precious Gems Co Purchased a Diamond-Cutting Machine at a Cost

question 15

Multiple Choice

Precious Gems Co purchased a diamond-cutting machine at a cost of $58 000.They bought it at a discount from the recommended price of $67 000 because of a drop in the demand for diamonds around that time.There were additional costs of $12 000 to get the machine operational.It was installed on 30 June 1997,but the machine was not used for 2 years.The operational life of the machine is expected to be 10 years at the end of which its salvage value is estimated to be $5000.On 30 June 2002,the machine was upgraded to allow a more sophisticated range of cutting styles to be used.The addition to the cutting machine cost $10 000,has an estimated life of 9 years and can be used on other machines.The addition is expected to have a nil salvage value.The machine and the addition are expected to generate economic benefits evenly over their lives.What is the depreciation expense for the diamond-cutting machine and addition for the years ended 30 June 1998; 30 June 2003; 30 June 2010 (rounded to the nearest dollar) ?

• A) $6,500; $7,929; $1,429
• B) $0; $7,611; $1,111
• C) $5,417; $6,527; $1,111
• D) $0; $6,829; $1,429
• E) None of the given answers.

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