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A lumber company purchases and installs a wood chipper for $200,000. The chipper is classifi ed as MACRS 7-year property. The chipper’s useful life is 10 years. The estimated salvage value at the end of 10 years is $25,000. Using Straight Line depreciation, compute the fi rst year depreciation.

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Answer:

Annual depreciation= $17,500

Explanation:

Giving the following information:

A lumber company purchases and installs a wood chipper for $200,000. The chipper’s useful life is 10 years. The estimated salvage value at the end of 10 years is $25,000.

Under the straight-line method of depreciation, we need to use the following formula to calculate the depreciation expense:

Annual depreciation= (original cost - salvage value)/estimated life (years)

Annual depreciation= (200,000 - 25,000)/10

Annual depreciation= $17,500

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