Question

In: Accounting

Lone Star Sales & Service acquired a new machine that cost $84,000 in early 2019. The...

Lone Star Sales & Service acquired a new machine that cost $84,000 in early 2019. The machine is expected to have a five-year useful life and is estimated to have a salvage value of $14,000 at the end of its life. (Round your final answers to the nearest dollar.)

(a.) Using the straight-line depreciation method, calculate the depreciation expense to be recognized in the second year of the machine's life and calculate the accumulated depreciation after the third year of the machine's life.
(b.) Using the double-declining-balance depreciation method, calculate the depreciation expense for the third year of the machine's life and the net book value of the machine at this point in time.

Solutions

Expert Solution

a Depreciation under Straight line method
depreciation = (Cost of the asset - Salvage Value)/ Useful life of asset
                            = ($84000-$14000 )/5
                            =$70,000/5
                             =$14,000 per year
Depreciation expense for the second year = $14,000
Year Opening Carrying Amount Depreciation Expense Accumulated Depreciation
2019                               84,000                                   14,000                             14,000
2020 70,000                                   14,000                             28,000
2021 56,000                                   14,000                             42,000

Accumulated Depreciation at the end of third year = $42,000

b) Double declining Balance depreciation = 2 × Straight-line depreciation rate × Book value at the beginning of the year
Depreciation rate = 100% / Life of the Asset
                                     = 100%/5
                                     =20%
Year Net book value at the beginning of the year Annual Depreciation Net book valueat the end of the year
2019                               84,000                                   33,600                             50,400
2020                               50,400                                   20,160                             30,240
2021                               30,240                                   12,096                             18,144

Depreciation Expense for the Third year = $12096

Net Book Value at the end of third year = $18,144


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