Randell Equipment Repair purchased equipment on March 15, 2014, for $75,000. The company also paid the following amounts: $1,000 for delivery charges; $200 for insurance while the machine was in transit; $1,800 for a one-year insurance policy; and $2,800 for testing and installation. The machine was ready for use on April 1, 2014, but the company did not start using it until May 1, 2014.
Randell will depreciate the equipment over 10 years with no residual value. It expects to consume the equipment's future economic benefits evenly over the useful life. The company has a December 31 fiscal year end.
Instructions
(a) Calculate the cost of the equipment.
(b) When should the company begin depreciating the equipment: March 15, April 1, or May 1? Why?
(c) Which depreciation method should the company use? Why?
(d) Calculate the depreciation on the equipment for 2014 and 2015.