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    FinancialAccoun's Avatar
    FinancialAccoun Posts: 6, Reputation: 1
    New Member
     
    #1

    Aug 8, 2008, 12:47 AM
    Captain Forest explain this to me
    Water company purchased a bottling machine on January 1, 2005 for $250,000. The estimated useful life is 25 years and they are using straight-line amortization. During 2007, they spent $46,000 on the machine to double its capacity and $5,000 on routine cleaning. What should the amortization expense be for 2007?


    $30,000


    12,000


    $12,200


    $10,000


    The answer is 12,000 but I do not get how it is. Please explain thank you
    CaptainForest's Avatar
    CaptainForest Posts: 3,645, Reputation: 393
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    #2

    Aug 8, 2008, 03:30 PM
    2005 Amortization:
    250,000 / 25 = 10,000

    Therefore, it will also be 10,000 for the 2006 amortization expense.

    2007 Amortization:
    Value of the Machine to be amortized = 250,000 – 10,000 – 10,000 = 230,000

    Subtract the 10,000 x 2 because of 05 and 06 amortization.

    You must also add the extra improvements of 46,000 to it (but not the routine cleaning of 5,000)

    Therefore, value of machine is 230,000 + 46,000 = 276,000

    2007 Amortization Expense = 276,000 / 23 = 12,000
    FinancialAccoun's Avatar
    FinancialAccoun Posts: 6, Reputation: 1
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    #3

    Aug 10, 2008, 01:33 AM
    Oh thank you thank you for the reply I got it before I saw your answer but it made it clearer to me now. Say can I get your email address because I have final exam and I need your help

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