Carla Vista Co. purchased a new machine on October 1, 2022, at a cost of $79,310. The company estimated that the machine has a salvage value of $7,210. The machine is expected to be used for 70,600 working hours during its 7-year life. Compute the depreciation expense under the straight-line method for 2022 and 2023, assuming a December 31 year-end.

$2,575; $10,300

Explanation:

Given that,

Cost of new machine = $79,310

Salvage value = $7,210

Machine used for = 70,600 working hours

Useful life = 7 years

Depreciation refers to the fall in the value of the fixed assets with the passage  of time.

Here, we are using the straight-line method for calculating the depreciation expense:

= (Cost of machine - Salvage value) ÷ useful life

= ($79,310 - $7,210) ÷ 7

= $72,100 ÷ 7

= $10,300

Therefore, the annual depreciation expense for 2023 is $10,300.

For the year 2022:

The machine is purchased on October 1, 2022. Hence, the depreciation expense is calculated for the 3 months (i.e, From October 1, 2022 to December 31, 2022).

Depreciation expense = Annual depreciation expense × (3/12)

                                     = $10,300 × (3/12)          

                                     = $2,575

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