McCartney Manufacturing purchased a dryer for $100,000 on January 1, 2008. The estimated life of the dryer

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McCartney Manufacturing purchased a dryer for $100,000 on January 1, 2008. The estimated life of the dryer is five years, and the salvage value is estimated to be $10,000. McCartney uses the straight-line method of depreciation.

On January 1, 2012, McCartney paid $160,000 to have the dryer overhauled, which increased the speed of the dryer and extended its estimated useful life to December 31, 2015. Each year, McCartney pays $1,000 to have the dryer serviced. On November 12, 2012, a major repair was repair was required at a cost of $5,000. salvage value is still estimated to be $10,000.

REQUIRED:

a. Provide the journal entry on January 1, 2008, to record the purchase of the dryer.

b. How should the service and repair costs be treated on McCartney’s books?

c. Compute the depreciation expense that would be recognized during each year of the dryer’s eight years of useful life.


Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...
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