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Equipment Cost $134,000 Installation Labor $4,500 Freight $10,000 Repairs of Damage during installation $6,000 Insurance on...

Equipment Cost	$134,000
Installation Labor	$4,500
Freight	$10,000
Repairs of Damage during installation	$6,000
Insurance on Freight	$1,500
Estimated Salvage Value	$20,000
Useful LIfe	8 years

Each question is independent from the others. Answer using the information above.

1. What is the book value after 3 years of depreciation, using straight line?

2.What is the accumulated depreciation after 3 years, using double declining balance?

3. What is the depreciable value of the asset?

4. Assuming straight line depreciation, at the end of year 4, an improvement is made that costs 9,000 and adds 1 year of life to the equipment. Salvage value is not changed.Compute the year 5 depreciation expense.

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Expert Solution

Equipment Cost	$134,000
Installation Labor	$4,500
Freight	$10,000
Repairs of Damage during installation	$6,000
Insurance on Freight	$1,500
Price of an equipment	$ 156,000

1. What is the book value after 3 years of depreciation, using straight line?

Purchase Price of an equipment = $ 156,000

Salvage Value = $ 20,000

Useful Life = 8 years

Annual Depreciation unders Straight Line Method =( $156,000 - 20,000) /8

= $ 17,000

Book Value after 3 years is:

Purchase Price = $156,000

Less: Depreciation for three years (17,000 * 3) = 51,000

Book value after 3 years = $105,000

2.What is the accumulated depreciation after 3 years, using double declining balance?

Cost of equipment = $ 156,000

Useful life = 8 years

Salvage Value = $20,000

Depreciation Rate = (1/ Useful Life ) *100 = (1/8) *100 = 12.5%

Double Declining Balance = 2* Depreciation Rate = 25%

Year	Balance ( brgining)	Depreciation	Book Value (at the end)
1	$156,000	25% = 39,000	$117,000
2	$117,000	25% = 29,250	87,750
3	$ 87,750	25% = 21937.5	65,812.5

Book Value under Double Declining Method after 3 years is = $ 65,812.5

3. What is the depreciable value of the asset?

Depreciable Value, in relation to tangible assets, is the value difference between cosrt of an asset and salvage Value. It is computed as follows:

Depreciable Value = Cosrt of Asset - Salvage Value

= $156,000 - 20,000

= $136,000

At the end of 4 years book value ( as per straight line method) would be:

Cost of Asset = $ 156,000

Less: Depreciation of 4 years (17,000 * 4 ) = 68,000

Value after 4 years = 88,000

Add: Improvement Cost = 9,000

New Total Value = $ 97,000

Salvage Value = $ 20,000

New Useful Life = 5 years

Yearly Depreciation Expense would be = ( 97,000 - 20,000) / 5 = $15,400

5 Years Depreciation would be = $ 15,400 * 5 = $ 77,000

ekkarill92 answered 1 year ago

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