Question

In: Accounting

Problem #2 A machine, which cost $400,000, is acquired on October 1, 2020. Its estimated salvage...

Problem #2

A machine, which cost $400,000, is acquired on October 1, 2020. Its estimated salvage value is $30,000 and its expected life is 8 years.

Instructions

Calculate depreciation expense for 2020 and 2021 by each of the following methods, showing the figures used. SHOW ALL WORK!

(a) Double-declining balance

(b) Straight-Line

Expert Solution

Cost of Machine = $400,000
Salvage Value = $30,000
Useful Life = 8 years

Answer a.

Double-declining-balance Depreciation Rate = 2 / Useful Life
Double-declining-balance Depreciation Rate = 2 / 8
Double-declining-balance Depreciation Rate = 25%

For October 1, 2020 to September 30, 2021:

Beginning Book Value = $400,000

Depreciation Expense = $400,000 * 25%
Depreciation Expense = $100,000

Ending Book Value = $400,000 - $100,000
Ending Book Value = $300,000

For October 1, 2021 to September 30, 2022:

Beginning Book Value = $300,000

Depreciation Expense = $300,000 * 25%
Depreciation Expense = $75,000

Ending Book Value = $300,000 - $75,000
Ending Book Value = $225,000

Depreciation for 2020 = $100,000 * (3/12)
Depreciation for 2020 = $25,000

Depreciation for 2021 = $100,000 * (9/12) + $75,000 * (3/12)
Depreciation for 2021 = $93,750

Answer b.

Annual Depreciation = (Cost of Machine - Salvage Value) / Useful Life
Annual Depreciation = ($400,000 - $30,000) / 8
Annual Depreciation = $46,250

Depreciation for 2020 = $46,250 * (3/12)
Depreciation for 2020 = $11,562.50

Depreciation for 2021 = $46,250

ekkarill92 answered 2 years ago

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