Why do you need to subtract $6,000 from original cost in year two if you don’t need to replace component until year 3? Thanks in advance. L1FR-PQ3029-1410
Alpha Mining Co. purchased a machine for crushing rocks for $80,000. The machine has a useful life of 8 years and an estimated salvage value of $8,000. In order to maintain the machine, the company will need to replace one of its component parts every 3 years. This part costs $6,000 and is considered to be a significant component.
The amount of depreciation expense the company should recognize in Year 2 if it uses the component method of depreciation is closest to:
$11,000 $10,250 $12,000 You Answered Correctly! Depreciation expense = [(80,000 – 6,000 – 8,000) / 8] + (6,000 / 3) = $10,250