what is final cost that would be used to determine straight line, sum of the yea
ID: 2434695 • Letter: W
Question
what is final cost that would be used to determine straight line, sum of the years digits, and double declining balance methods.purchased 5/1/2007 paid 05/05/2007 expected that the machine would be used for 10 years and which the salvage value would be zero. intends to use machine for only 8 years after which it expects to be able to sell it for 1,200. calendar year is used in preparation of financial statements.
price 73,500
credit terms 2/10, n/30
freight-in costs 970
preparation and installation costs 3,800
labor costs during regular production operations 10,500
Explanation / Answer
first we take the Nominal value will we calculate the depreciation is from the value of price self. ignore the another info, because we will calculate the depreciation, not selling or manufacturing. 1. When make a Straight line method: With price: 73,500 Assumption the intend to use this machine is 8 year with value of price 1,200 (it's ca be named salvage value too) So the cost of depreciation is : Depreciation base(price-salvage value)/useful life : (73,500-1,200)/8years : 9,037.5/year 2. Sum of the years digit method From the age of the machine (is 8 years), we count that's number to back until one, and then we sum total all the number. age of machine is 8 year: 8+7+6+5+4+3+2+1 = 36 And then we search the percentage of cost of depreciation each year: year 1: 8/36 X 100%= 22.22% -> 22.22% X (73,500-1,200)= $16,065.06 year 2: 7/36 X 100%= 19.44% -> 19.44% X (73,500-1,200)= $14,055.22 ect... 3. Doubled Declining Method For this method, have the same calculation like straight line method. just before you divide the depreciation base with useful life, you must double the value of depreciation base. year 1: the depreciation base is $72,300(get from the calculation in above) and the double it, become $154,600. After that, you divide that amount with year of useful life: $154,600/8= $19,325 year 2: put the last amount from previous year: $19,325. That's amount used for less the Book Value($72,300 - $19,325= $52,975). And than double it again after that divide with useful life: ($52,975 X 2)/8= $13,243.75year 3: Book Value less the previous year depreciation value= $52,975 - $13,243.75= $39,731.25 Depreciation of this year= ($39,731.25 X 2)/8= $9,932.81 ect.. until the amount near the zero
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