Samson Manufacturing Company, a calendar-year company, purchased a machine for $65,000 on January 1, 20X0. At the date of purchase, Samson incurred the following additional costs: Loss on sale of old machinery $1,000 Freight-in 500 Installation cost 2,000 Testing costs prior to regular operation 300 The machine’s estimated salvage value was $5,000, and Samson estimated it would have a useful life of 20 years with depreciation being computed on the straight-line method. In January 20X2, accessories costing $3,600 were added to the machine to reduce its operating costs. These accessories neither prolonged the machine’s life nor provided any additional salvage value. Required: What should Samson record as depreciation expense for 20X2?

Samson should record as depreciation expense for 20X2 $3,340

Explanation:

In order to calculate what should Samson record as depreciation expense for 20X2 we would have to calculate first the cost to capitalize as follows:

cost to capitalize=Purchase price+Freight+Installation+Testing

cost to capitalize=$65,000+$500+$2,000+$300

cost to capitalize=$67,800

Depreciation expense 20X1=(Cost of machinery-residual value)/life of machinery

Depreciation expense 20X1=($67,800-$5,000)/20

Depreciation expense 20X1=$3,140

Book value at the beginning of 20X2=Cost of machinery-((Cost of machinery-residual value)/life of machinery)*period of asset used

=$67,800-($62,800-$5,000/20)*2

=$61,520

Therefore, depreciation expense for 20X2=(Book value of machinery+Accesories cost-residual vale)/Life of machinery

=($61,520+$3,600-$5,000)/18

=$3,340

Samson should record as depreciation expense for 20X2 $3,340

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