Ordinary Repairs vs. Capital Improvements Video Lessons

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Problem: Mountain View Corporation purchased a machine with an initial cost of $90,000, a residual value of $5,000, and an estimated useful life of 10 years. At the beginning of the fifth year, Mountain View Corporation spent $12,000 for an extraordinary repair (betterment). Following the betterment, Mountain View estimated that the machine had a remaining useful life of 8 years, and that the residual value was unchanged. Calculate depreciation expense on the machine for the fifth year, assuming they use the straight-line method. a. $7,875. b. $12,125. c. $8,500. d. $6,375. e. None of the above

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Mountain View Corporation purchased a machine with an initial cost of $90,000, a residual value of $5,000, and an estimated useful life of 10 years. At the beginning of the fifth year, Mountain View Corporation spent $12,000 for an extraordinary repair (betterment). Following the betterment, Mountain View estimated that the machine had a remaining useful life of 8 years, and that the residual value was unchanged. Calculate depreciation expense on the machine for the fifth year, assuming they use the straight-line method.

a. $7,875.

b. $12,125.

c. $8,500.

d. $6,375.

e. None of the above

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