Question

Banko Inc. manufactures sporting goods. The following information applies to a machine purchased on January 1, Year 1:

Purchase price	$	61,000
Delivery cost	$	5,000
Installation charge	$	1,000
Estimated life		5	years
Estimated units		155,000
Salvage estimate	$	5,000

During Year 1, the machine produced 51,000 units, and during Year 2 it produced 53,000 units.

Required
a. Determine the amount of depreciation expense for Year 1 and Year 2 using straight-line method.
b. Determine the amount of depreciation expense for Year 1 and Year 2 using double-declining-balance method.
c. Determine the amount of depreciation expense for Year 1 and Year 2 using units of production method.
d. Determine the amount of depreciation expense for Year 1 and Year 2 using MACRS, assuming that the machine is classified as seven-year property. (Round your answers to the nearest dollar amount.)

MACRS table:

Year	5-Year property,%			7-Year property,%
1		20.00			14.29
2		32.00			24.49
3		19.20			17.49
4		11.52			12.49
5		11.52			8.93
6		5.76			8.92
7					8.93
8					4.46

Answer 1

Cost of Asset = Purchase price + Delivery + Installation = $61000 + 5000 + 1000 = $67000

a. Determine the amount of depreciation expense for Year 1 and Year 2 using straight-line method.

Year 1 = Amount of Depreciation = (Cost - Salvage) / Useful Life = (67000 - 5000) / 5 = $12400

Year 2 = Amount of Depreciation = (Cost - Salvage) / Useful Life = (67000 - 5000) / 5 = $12400

b. Determine the amount of depreciation expense for Year 1 and Year 2 using double-declining-balance method.

Year 1 = Amount of Depreciation = Book Value * 100 / Useful Life * 2 / 100 = 67000 * (100 / 5) * (2 / 100) = $26800

Year 2 = Amount of Depreciation = Book Value * 100 / Useful Life * 2 / 100 = (67000 - 26800) * (100 / 5) * (2 / 100) = $16080

c. Determine the amount of depreciation expense for Year 1 and Year 2 using units of production method.

Year 1 = Amount of Depreciation = Depreciable Cost * Units Produced / Estimated Units = $62000 * 51000 / 155000 = $20400

Year 2 = Amount of Depreciation = Depreciable Cost * Units Produced / Estimated Units = $62000 * 53000 / 155000 = $21200

d. Determine the amount of depreciation expense for Year 1 and Year 2 using MACRS, assuming that the machine is classified as seven-year property.

Year 1 = Amount of Depreciation = Asset Cost * Year 1 Rate = $67000 * 14.29% = $9574

Year 2 = Amount of Depreciation = Asset Cost * Year 1 Rate = $67000 * 24.49% = $16408