On July 1, 2018, the Darden Company purchased a machine that was invoiced at $20,000 (terms...
On July 1, 2018, the Darden Company purchased a machine that was invoiced at $20,000 (terms 2/10, n/30, FOB destination). The invoice was paid within the discount period. The freight company charged the seller $500 to ship the machine, and the Darden Company incurred $800 in installation costs. The estimated useful life is five years, after which it will have an estimated salvage value of $1,000. Straight-line depreciation for 2018 would be:
A) $26,300 x 1/5 x 1/2 = $2,630.
B) $21,300 x 1/5 = $4,260.
C) $19,800 x 1/5 x 1/2 = $1,980.
D) $19,400 x 1/5 x 1/2 = $1,940.
Homework Answers
Cost of the machine
= (20,000 - 2% discount) + installation 800
= 20,400
Depreciation = (Cost - Salvage value) /Useful life
= (20,400-1,000) * 1/5 * 6/12
= 19,400 * 1/5 * 6/12
= 1940
Option D is the answer
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