Sheridan Company purchased machinery on January 2, 2015, for $880000. The straight-line method is used and useful life is estimated to be 10 years, with a $82000 salvage value. At the beginning of 2021 Sheridan spent $187000 to overhaul the machinery. After the overhaul, Sheridan estimated that the useful life would be extended 4 years (14 years total), and the salvage value would be $45000. The depreciation expense for 2021 should be

$67,900

Explanation:

For computing the depreciation expense for the year 2021 we need to first find out the depreciation expense for 6 years after that the book value which is shown below:

Depreciation expense for 6 years using the straight line method is

= (Original cost - salvage value) ÷ (estimated useful life)

= ($880,000 - $82,000) ÷ (10 years)

= ($798,000) ÷ (10 years)  

= $79.800

In this method, the depreciation is same for all the remaining useful life

This is a one year depreciation

So for six years, the accumulated depreciation is  

= $79,800 × 6 years

= $478,800

The six years is calculated from Jan 2, 2015 to 2021

Now the book value is

= Purchase value of the machinery - accumulated depreciation

= $880,000 - $478,800

= $401,200

And, there is an overhaul expense i.e $187,000

So total cost is

= $401,200 + $187,000

= $588,200

The salvage value is $45,000

And the remaining life is 8 years

So, the depreciation expense for 2021 is

= ($588,200 - $45,000) ÷ 8 years

= $67,900

answer; that person may have a larger tax bill to pay on income taxes;