A company buys a machine for $28,100 on January 1, 2005. The maintenance costs for the years 2005–2008 are as follows: 2005, $2,100; 2006, $2,300; 2007, $8,700 (includes $6,500 for cost of a new motor installed in December 2007); 2008, $2,400.

Instructions:

1. Assume the machine is recorded in a single account at a cost of $28,100. Although it was not accounted for separately, the old motor (replaced at the end of 2007) had a cost of $6,100. Straight-line depreciation is used, and the asset is estimated to have a useful life of 9 years. It is assumed there will be no residual value at the end of the useful life. What are the total expenses related to the machine for each of the first four years?

2. Assume the cost of the frame of the machine was recorded in one account at a cost of $22,000 and the motor was recorded in a second account at a cost of $6,100. Straight line depreciation is used with a useful life of 10 years for the frame and four years for the motor. Neither item is assumed to have any residual value at the end of its useful life. What are the total expenses related to the machine?

3. Evaluate the two methods.