Question 1 - In January 2006, Concepts Solution a Lawn Care and Landscaping Company purchased a Skid Loader that cost $48,000. Concepts Solution estimated that the equipment would last for 5 years and have a salvage value of $2,000 at the end of 2010. The company uses straight-line method of depreciation. Analyze each of the following independent scenarios.
1. Before the depreciation expense is recorded for 2008 Concepts Solution discovers that at the end of 2010 the Skid Loader will only have a salvage value of $500 instead of $2,000.
2. Before the depreciation expense is recorded for 2008 Concepts Solution decided that the Skid Loader will only last until the end of 2009. It's estimated that the value of the system will only be worth $2,000.
3. Before the depreciation expense is recorded for 2008 Concepts Solution decided that the Skid Loader will last until the end of 2010 but it will only be worth $1,000.
4. Before the depreciation expense is recorded for the year 2008 Concepts Solution decides to add upgrades to the Skid Loader which will extend its useful life to 2014. The upgrades cost 4,000 and the estimated useful life would be "0"
Required: Calculate the amount of depreciation expense that Concepts Solution would report on its income statement for the year ended December 31, 2008, for the Skid Loader, under each scenario.
Question 2 - The Specialty Lab an engineering firm purchased new machinery in 2009 for a total of $168,500. The Installation cost was $1,350, delivery cost $1,500, and insurance to cover the equipment while it was in transit was $500. The Specialty Lab also received a 2% discount since they paid cash for the equipment at the time of delivery. The technology used in operating the machinery was new to The Specialty Lab. They had to hire an employee that had the experience and expertise to operate the machinery at an annual salary of $65,000.
Required:
1. What amount should be capitalized for this new asset?
2. To calculate the depreciation expense for 2009, what other information do you need? Do you think the company should have gathered this information before purchasing the machinery? Why or why not?