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	D_n		B_n
n	DDB	SL
0
1
2
3
4
5
6
7
8

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

jeff jeffy answered 1 year ago

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