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In: Finance

Compute the depreciation and book value each year of a machine that costs $67,000 to purchase...

Compute the depreciation and book value each year of a machine that costs $67,000 to purchase and $3,000 to install with an 8-year life. Use the double declining balance method with switching to straight line depreciation. (a) Fill out the following table, assuming a $1,000 salvage value. (b) What would be D7 if the salvage value was $18,000?

n

Dn

Bn

DDB

SL

0

1

2

3

4

5

6

7

8

Solutions

Expert Solution

Answer a
Depreciation per year double declining balance method = 2 x Straight line depreciation rate x beginning book value of a machine
Straight line depreciation per year = [Cost - salvage value]/useful life = [$70000-$1000]/8 years = $8,625
Straight line depreciation rate = Depreciaton per year / [cost - salvage value] = $8,625 / $69,000 = 12.50%
Depreciation per year double declining balance method = 2 x 12.50% x beginning book value of a machine
Depreciation per year double declining balance method = 25% x beginning book value of a machine
n Dn Bn
DDB SL
0 $0 $0 $70,000
1 $17,500 $8,625 $52,500
2 $13,125 $8,625 $39,375
3 $9,844 $8,625 $29,531
4 $7,383 $8,625 $22,148
5 $5,537 $8,625 $16,611
6 $4,153 $8,625 $12,458
7 $3,115 $8,625 $9,344
8 $2,336 $8,625 $7,008
Answer b
Straight line depreciation per year = [Cost - salvage value]/useful life = [$70000-$18000]/8 years = $6,500
Straight line depreciation rate = Depreciaton per year / [cost - salvage value] = $6,500 / $52,000 = 12.50%
Depreciation per year double declining balance method = 2 x 12.50% x beginning book value of a machine
Depreciation per year double declining balance method = 25% x beginning book value of a machine
n Dn Bn
DDB SL
0 $0 $0 $70,000
1 $17,500 $6,500 $52,500
2 $13,125 $6,500 $39,375
3 $9,844 $6,500 $29,531
4 $7,383 $6,500 $22,148
5 $5,537 $6,500 $16,611
6 $4,153 $6,500 $12,458
7 $3,115 $6,500 $9,344
8 $2,336 $6,500 $7,008

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