The Primark Company purchased a machine on January 2, 2010 and uses the 150%-dec

Question

The Primark Company purchased a machine on January 2, 2010 and uses the 150%-declining-balance depreciation method. The machine has an expected life of 10 years and an expected residual value of $5,000. The following costs relate to the acquisition and use of the machine during the first year of its operations:

Invoice price $50,000
Discounts available and taken 1,000
Freight 700
Installation 900
Testing 1,100
Normal spoilage of materials during the year 750
Abnormal spoilage of materials during the year 250
Wages of machine operator 15,000

Required:
Compute the depreciation expense for 2010 and 2011.

Explanation / Answer

Compute the depreciation expense for 2010 and 2011. Invoice price $50,000 Less: Discount $ 1,000 Net Amount billed $49,000 Add: Freight $700 Installation $900 Testing $1,100 Total cost capitalized $51,700 Depreciation for 2010 $ 7,755 Book value on 1.1.2011 $43,845 Depreciation for 2011 $ 6,592 Book value on 1.1.2012 37,353 ===== Note: depreciation has been calculated at 15% on declining balance.

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