Yr 1 Actual Revenue: Net patient service revenue $3,432,000 Other revenue $0 Total revenues $3,432,000 Expenses: Salaries and benefits $2,864,000 Supplies $240,000 Insurance and other $50,000 Provision for bad debts $50,000 Depreciation $18,900 Interest $62,500 Total expenses $3,285,400 Operating income $146,600
Johnson Family Care Inc. is a large ambulatory care center that provides comprehensive 24-hour primary and specialty care to a large suburban population in Pennsylvania. The center recently purchased new clinical laboratory equipment for $1.1 million and spent $22,000 to renovate a center room to accommodate the new equipment. The useful life of the equipment is estimated to be ten years, after which it can be sold for $75,000. Johnson uses a straight-line method to calculate book depreciation and pays tax at a rate of 40 percent. The equipment falls into the MACRS seven-year class.
a. What annual depreciation expense will be reported on the income statement for the center?