DEPRECIATION COMPUTATIONS ON JULY 1, 2015 DOLBY CORP PURCHASED SOME NEW EQUIPMEN
ID: 2411013 • Letter: D
Question
DEPRECIATION COMPUTATIONS
ON JULY 1, 2015 DOLBY CORP PURCHASED SOME NEW EQUIPMENT TO BE USED IN THEIR RECORDING STUDIO. THE EQUIPMENT COST $70,000 AND IT IS EXPECTED TO HAVE A SALVAGE VALUE OF $8,000 AFTER ITS USEFUL LIFE OF 6 YEARS. IT IS ESTIMATED THAT THE MACHINE WILL BE USED FOR 32,000 HOURS OF RECORDING OVER THE 6 YEARS. DOLBY USED THE EQUIPMENT FOR 8,000 HOURS AND 9,000 HOURS FOR THE YEARS 2015 AND 2016 RESPECTIVELY. MACRS (TAX) DEPRECIATION SPECIFIES A FIVE-YEAR RECOVERY PERIOD FOR THIS ASSET. THE IRS TABLE SHOWS THE FOLLOWING PERCENTAGES FOR DEPRECIATION: YEAR PERCENTAGE FIRST 20% SECOND 32% THIRD 19.20% FOURTH 11.52% FIFTH 11.52% SIXTH 5.76% CALCULATE THE DEPRECIATION EXPENSE FOR 2015 AND FOR 2016 USING (a) the straight-line method, (b) the DDB method, (3) the units of activity method, and (4) the MACRS method.
Explanation / Answer
a) Straight-line Method Annual Depreciation =( $70,000 - $8,000)/6 $10,333.33 Depreciation for 2015 = $10,333.33 x 6 months /12 months $5,166.67 Depreciation for 2016 $10,333.33 b)DDB Method Rate of Depreciation = 1/ useful life x 100% = 1/6 x 100% 16.67% DDB rate of Depreciation = 16.67% x 2 33.33% Depreciation for 2015 = $70,000 x 33.33% x 6/12 months $11,666.67 Depreciation for 2016 = ($70,000 - 11,666.67) x 33.33% x 6/12 months $19,444.44 c)units of activity method Depreciation per unit = ($70,000 - $8,000)/32000 hours $1.94 per hour Depreciation for 2015 = $1.94 x 8000 hours $15,500.00 Depreciation for 2016 = $1.94 x 9000 hours $17,437.50 4) MACRS Depreciation for 2015 = $70000 x 20% $14,000.00 Depreciation for 2015 = $70000 x 32% $22,400.00
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