Williams Company purchased a machine costing $25,000 and is depreciating over a 10-year estimated useful life with a residual value of $3,000. At the beginning of the eighth year, a major overhaul on it was completed at a cost of $8,000, and the total estimated useful life was changed to 12 years with the residual value unchanged. How much is the year 8 depreciation expense assuming use of the straight-line depreciation method

$3,100

Explanation:

We need to determine the carrying value of the machine after 8 years as a starting point in this analysis.

annual depreciation expense=cost-residual value/useful life

cost= $25,000

residual value=$3,000

useful life=10 years

annual depreciation expense=($25000-$3000)/10

annual depreciation expense=$2,200

accumulated depreciation for 8 years=$2,200*8=$17,600

carrying value after 8 years=cost-accumulated depreciation for 8 years

carrying value after 8 years=$25,000-$17,600=$7,400

The cost of the major overhaul would increase the carrying value with both amounts depreciation over the remaining 4 years since the useful life has been increased from 10 to 12 years

year 8 depreciation=(carrying value afte

year 8 depreciation=($7,400+$8,000-$r 8 years+cost of the overhaul-residual value)/remaining useful life 3,000)/4

year 8 depreciation=$3,100

one of the appeals of a sole proprietorship is that business expenses are kept separate from your personal income tax return