Robert Smith Company purchased a new machine for its assembly process on June 1,

Question

Robert Smith Company purchased a new machine for its assembly process on June 1, 2015. The cost of this machine was $122,000. The company estimated that the machine would have a salvage value of $12,000 at the end of its service life. Its life is estimated at 5 years.

Required: Compute the depreciation expense under the following methods:

Straight-line method

Sum-of-the-years-digits

Double declining balance

Six Star Corporation purchased a piece of equipment at the beginning of 2012. The equipment cost $120,000. Its estimated service life is 7 years and has an expected salvage value of $6,000. The sum-of-the-years-digits method is used. The depreciation schedule has a $20,357 annual depreciation expense for a certain year.

Required: Determine what year the depreciation expense of $20,357 is on the depreciation schedule. Round all answers to the nearest whole dollar.

Explanation / Answer

1) straight line method

   depreciation per year = 122000 - 12000 / 5 year

=22000

year Depreciation

2015 22000 * 7/12 months =$12833

2016 to 2019 year 22000 per year

sum of the digit

Year depreciaiton factor depreciation

2015 5/15 110000 *5/15 = 36667

2016 4/15 110000*4/15 =29333

2017 3/15 110000*3/15 =22000

2018 2/15 110000 * 2/15 =14667

2019 1/15 110000* 1/15 =7333

Note:-  sum of digit = 5 + 4 + 3+ 2 + 1

   = 15

depreciation base = 122000- 12000

   = 110000

Double declining balance

year Book value    Depreciation   

2015 122000    122000 *40% * 7/12 = 28467

2016 93533 93533 *40% = 37413

2017 56120 56120 *40% = 22448

2018 33672 33672 *40% = 13469

2019 20203 20203 * 40% = 8081

Note:-  Depreciation rate = 2 * straigth line rate

   = 2 * 1/ 5 per year

   = 40%

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