4. (4 points) Problem #4 - On 4/1/X1, James Jones, Inc. purchased production mac
ID: 2349010 • Letter: 4
Question
4. (4 points) Problem #4 - On 4/1/X1, James Jones, Inc. purchased production machinery costing $320,000. Because of recent innovations, the machinery has an estimated useful life of only 3 years. It has a salvage value of $20,000. For each of the depreciation methods given below, complete the depreciation tables. Round annual depreciation numbers to the nearest dollar. <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" /?>
YEAR
Annual Depreciation
Accumulated Depreciation
Year-end
Book Value
-0-
-0-
320,000
20X1
20X2
20X3
20X4
YEAR
Annual Depreciation
Accumulated Depreciation
Year-end
Book Value
-0-
-0-
320,000
20X1
20X2
20X3
20X4
YEAR
Annual Depreciation
Accumulated Depreciation
Year-end
Book Value
-0-
-0-
320,000
20X1
20X2
20X3
20X4
Explanation / Answer
straight line
year
annual dep
accum dep
year-end book value
0
0
320000
1
75000
75000
245000
2
100000
175000
145000
3
100000
275000
45000
4
25000
300000
20000
double declining balance
year
annual dep
accum dep
year-end book value
0
0
320000
1
160,000
160000
160000
2
106,667
266,667
53,333
3
33,333
300,000
20,000
4
0
0
20,000
calculations for depreciation
annual depreciation for straight line:
(cost – salvage value)divided by useful life = depreciation per year
(320,000-20,000)/3 = 100,000 per year
year 1: 100,000*9 months/12 months = 75,000
year 2: 100,000 (full year)
year 3: 100,000 (full year)
year 4: 25,000 (book value cannot go below 20,000
Annual depreciation for DDB:
For Double declining balance, rate is twice straight line rate. The rate is applied to the book value, and salvage value is ignored. But you cannot depreciate below the salvage value
Straight line rate: 1/3
DDB is twice straight line rate: 2/3
Year 1: 320,000*2/3*9 months/12 months = 160,000
year 2: 160,000*2/3 = 106,667
year 3: 53,333*2/3 = 35,555, but cannot depreciate below 20,000, so it is 33,333
straight line
year
annual dep
accum dep
year-end book value
0
0
320000
1
75000
75000
245000
2
100000
175000
145000
3
100000
275000
45000
4
25000
300000
20000
double declining balance
year
annual dep
accum dep
year-end book value
0
0
320000
1
160,000
160000
160000
2
106,667
266,667
53,333
3
33,333
300,000
20,000
4
0
0
20,000
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