Question

ABC Company bought a piece of equipment on January 1, 2017. The original price was $30,000. Because ABC paid in cash, they received a 20% discount on the original price. To prepare the equipment for its intended use, ABC incurred $100 installation costs and $1,000 shipping costs. They hired an employee to operate the equipment for an annual salary of $20,000. Finally, the company paid an insurance premium of $400 in advance. The company estimated the equipment’s useful life to be 5 years and its residual value to be $10,000. To depreciate the equipment, the company used the straight-line method. On January 1, 2018, the company performed a major overhaul on the equipment which cost $5,000. As a result, the equipment’s total useful life increased to 6 years instead of 4 years. On June 30, 2018, ABC sold the equipment for $5,000. Depreciation expense through June 30, 2018 had been properly recorded.

A. Total Acquisition Cost (hint: total debits to equipment account on January 1, 2017)

B. Depreciation Expense on the 2017 Income Statement

C. Depreciation Expense on the 2018 Income Statement