Contemporary Engineering Economics 6th Edition by Chan Park

Exercise 1

On January 2, 20l0, the Allen Flour Company purchased a new machine at a cost of $82,000. Installation costs for the machine were $3,000. The machine was expected to have a useful life of 10 years, with a salvage value of $3,000. The company uses straight-line depreciation for financial reporting. On January 3, 2013, the machine broke down, and an extraordinary repair had to be made to the machine at a cost of $8,000. The repair extended the machine's life to 13 years, but left the salvage value unchanged. On January 2, 2016, an improvement was made to the machine in the amount of $5,000 that increased the machine's productivity and increased the salvage value (to $6,000), but did not affect the remaining- useful life. Determine depreciation expenses every December 31st for the years 2010, 2013, and 2016.