A company buys a machine for $61,700 on January 1, 2010. The maintenance costs for the years 2010-2013 are as follows: 2010, $4,900; 2011, $4,700; 2012, $12,400 (includes $7,800 for cost of a new motor installed in December 2012); 2013, $4,800.
Instructions:
1. Assume the machine is recorded in a single account at a cost of $61,700. Although it was not accounted for separately, the old motor (replaced at the end of 2012) had a cost of $7,100. Straight-line depreciation is used, and the asset is estimated to have a useful life of 11 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 $54,600 and the motor was recorded in a second account at a cost of $7,100. Straight-line depreciation is used with a useful life of 13 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.