A Company Purchased a Machine on January 1 of the Current

question 167

Essay

A company purchased a machine on January 1 of the current year for $750,000. Calculate the annual depreciation expense for each year of the machine's life (estimated at 5 years or 20,000 hours, with a residual value of $75,000). During the machine's 5-year life its hourly usage was: 3,000; 4,000; 5,000; 5,000; and 3,000 hours.

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Definitions:

Original Cost

The initial purchase price or construction cost of an asset before adjustments for depreciation or amortization.

Trading Securities

Financial instruments, such as stocks or bonds, that are bought and held primarily for the purpose of selling them in the near term to profit from price fluctuations.

Income Statement

A financial statement that shows a company's revenues, expenses, and profits over a certain period.

Valuation Allowance Accounts

Accounts used to adjust the carrying value of deferred tax assets to the amount that is more likely than not to be realized.