Wizard Co. purchased two machines for $250,000 each on January 2. The machines were put into use immediately. Machine A has a useful life of 5 years and can be used in only one research project. Machine B will be used for 2 years on a research and development project and then used by the production division for an additional 8 years. Wizard uses the straight-line method of depreciation. What amount should Wizard include in research and development expense for the year?

$75,000

Explanation:

Depreciation is a systematic allocation of the cost of an asset over the useful life period . It is done in two major ways namely straight line or reducing balance method.

The first machine with useful life of 5 years with no scrap value will have an annual depreciation charge of ($250,000/5) = $50,000 charged to the research and expenses .

In the case of the second machine , the useful life is (2+8) years which is 10 years. Therefore the annual depreciation charge will be ($250,000/10) $25,000.

A total depreciation amount of $75,000 should be included in the research and development expenses for the year

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