Charlotte Motorcycle Repair Corporation purchased a machine on January 1, 2010, for $8,000 cash. The firm expects to use the machine for four years and thinks it will be worthless at the end of the four year period. The company will depreciate the machine in equal annual amounts.
1. Show the purchase of the machine and the first years depreciation in the accounting equation.
2. Show how the machine will be presented in the asset section of the balance sheet at December 31, 2010, and December 31, 2011, after appropriate adjustments
3. What amount of depreciation expense will be shown on the income statement for the year ended December 31, 2010? What amount will be shown for the year ended December 31, 2011?
4. Calculate the total depreciation expense for all four years of the assets life. What do you notice about the book value of the asset at the end of its useful life?