A loader has an initial cost of $154,000 and an estimated useful life of 8 years....

A loader has an initial cost of $154,000 and an estimated useful life of 8 years. The salvage value after 8 years of use is estimated to be $10,000.

a. What is the annual depreciation amount if the straight-line method of depreciation accounting is used?

b. What is the book value after 6 years if the straight-line method of depreciation accounting is used?

c. What is the annual depreciation amount in the fifth year if the sum-of-the-years method of depreciation accounting is used?

d. What is the book value at the end of the sixth year if the sum-of-the-years method of depreciation accounting is used?

e. What is the annual depreciation amount in the fourth year if the double-declining-balance method of depreciation accounting is used?

f. Assume this loader has a recovery period of 5 years in The Modified Accelerated Cost Recovery System (MACRS), list annual depreciation amount and book value for every depreciable year. (Annual depreciate rate is given in the following table)

Expert Solution

a.	Annual depreciation under SLM=(Initial cost-Salvage value)/Useful life=(154000-10000)/8=$ 18000
b.	Book value after 6 years=Initial cost-Accumulated depreciation=154000-(18000*6)=$ 46000
c.	Depreciation expense under SYD method=(Initial cost-Salvage value)*(Remaining useful life of the asset/Sum of the year's digits)
	Depreciation expensefor the 5th year=(154000-10000)(4/1+2+3+4+5+6+7+8)=144000(4/36)=$ 16000
d.	Year	Depreciable Value	Remaining Useful life	Depreciation expense		Book value
	1	144000	8	144000*8/36=32000		112000
						(144000-32000)
	2	144000	7	144000*7/36=28000		84000
						(112000-28000)
	3	144000	6	144000*6/36=24000		60000
						(84000-24000)
	4	144000	5	144000*5/36=20000		40000
						(60000-20000)
	5	144000	4	144000*4/36=16000		24000
						(40000-16000)
	6	144000	3	144000*3/36=12000		12000
						(24000-12000)

	Book value at the end of 6th year= $ 12000

e.	Depreciation expense under double-declining balance method of depreciation=2Staraight line rateBook value at the beginning of the year
	Straight line rate=(1/Useful life)100=(1/8)100=12.5%

	Year	Book value at the beginning	Depreciation expense		Book value at the end
	1	154000	212.5%154000=38500		115500
					(154000-38500)
	2	115500	212.5%115500=28875		86625
					(115500-28875)
	3	86625	212.5%86625=21656		64969
					(86625-21656)
	4	64969	212.5%64969=16242		48727
					(64969-16242)

	Annual depreciation in 4th year= $ 16242

ekkarill92 answered 1 year ago

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