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MacKenzie Manufacturing purchased equipment for $160,000. In addition, shipping charges of $2,000 were incurred to obtain the equipment. The company paid $12,500 to construct a foundation and install the equipment. The equipment is estimated to have a residual value of $15,000 at the end of its 5-year useful life.Using the straight-line method, what is the amount of depreciation expense each year?a. $34,900b. $34,500c. $31,900d. $29,900

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Answer:

c. $31,900

Explanation:

Depreciation in itself is used to determine how much value a fixed asset loses per year over its useful life. Straight line depreciation method incorporates all costs incurred to get the fixed asset ready for use, it also considers the salvage value at the end of the project life.

Depreciation = (Cost of equipment - Salvage) / useful life

Cost of equipment = price of equipment +shipping cost + installation cost

Cost of equipment = 160,000 + 2,000 + 12,500 = 174,500

Salvage value = 15,000

Useful life = 5 years

Therefore, depreciation = (174,500 - 15,000) / 5

Depreciation = 159,500/5

= $31,900

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