Tomko Company purchased machinery with a list price of $96,000. They were given a 10% discount by the manufacturer. They paid $600 for shipping and sales tax of $4,500. Tomko estimates that the machinery will have a useful life of 10 years and a residual value of $30,000. If Tomko uses straight-line depreciation, annual depreciation will be:

A. $6,150.

B. $6,108.

C. $9,150.

D. $5,640

$6150.

Explanation:

Given:

Tomko Company purchased machinery with a list price of $96,000.

10% discount by the manufacturer.

They paid $600 for shipping and sales tax of $4,500.

Tomko estimates that the machinery will have a useful life of 10 years and a residual value of $30,000.

If Tomko uses straight-line depreciation, annual depreciation will be ?

Solution:

List price of machinery = $96,000

Discount amount = 10% of 96,000

Shipping cost = $600

Sales tax = $4,500

Actual cost of machinery = List price - Discount amount + Shipping cost + Sales tax

Actual cost of machinery = $96000 - $9600 + $600 + $4500

                                          = $91,500

Residual value = $30,000

Useful life = 10 years

As we know:

Thus, annual depreciation of machinery of Tomko Company will be $6150.

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