Banko Inc. manufactures sporting goods. The following information applies to a m
ID: 2451831 • Letter: B
Question
Banko Inc. manufactures sporting goods. The following information applies to a machine purchased on January 1, 2016: Purchase price $ 90,800
Delivery cost $ 4,000
Installation charge $ 3,000
Estimated life 5 years
Estimated units 153,000 Salvage estimate $ 6,000
During 2016, the machine produced 49,000 units and during 2017, it produced 51,000 units.
Required: a. Determine the amount of depreciation expense for 2016 and 2017 using straight-line method. Depriation expense 2016 2017 b. Determine the amount of depreciation expense for 2016 and 2017 using double-declining-balance method
Depriation expense 2016 2017
c. Determine the amount of depreciation expense for 2016 and 2017 using units of production method.
Depriation expense 2016 2017
d. Determine the amount of depreciation expense for 2016 and 2017 using MACRS, assuming that the machine is classified as seven-year property. (Round your answers to the nearest dollar amount.)
MACRS table: Year 5-Year property, % 7-Year property,
1 20.00 14.29
2 32.00 24.49
3 19.20 17.49
4 11.52 12.49
5 11.52 8.93
6 5.76 8.92
7 8.93
8 4.46
depriation expense 2016 2017
Explanation / Answer
Cost of the machine to be capitalized
= Purchase price + Delivery cost + Installation charge
= $ 90,800 + $ 4,000 + $ 3,000 = $97800
a) Straight Line Method:
Depreciation per year
= (cost of the machine - salvage value) / number of useful life
= ($97800 - $6000) / 5 = $18360
b) double-declining-balance method
Rate of depreciation = 2 * (1/5) * 100 % = 40%
c) units of production method.
Rate of depreciation = (97800 - 6000) / 153000 units = $0.60 per unit
Depreciation for 2016 = 49000 units * $0.60 per unit = $29400
Depreciation for 2017 = 51000 units * $0.60 per unit = $30600
d) depreciation expense for 2016 and 2017 using MACRS
The machine has been classified as 7 year property. So the rate for 7 year will be applied to calculate the depreciation.
2016 = $97800 * 14.29% = $13975.62
2017 = $97800 * 24.49% = $28841.22
Note: in case of double declining method and MARCS method, the salvage value of the equipments are not considered for calculating the depreciation base.
Year net book value at the beginning of the year Depreciation @ 40% Net book value at the end of the year 2016 97800 39120 58680 2017 58680 23472 35208Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.