Banko Inc. manufactures sporting goods. The following information applies to a m

Question

Banko Inc. manufactures sporting goods. The following information applies to a machine purchased on January 1, 2016:

Determine the amount of depreciation expense for 2016 and 2017 using straight-line method.

Determine the amount of depreciation expense for 2016 and 2017 using double-declining-balance method.

Determine the amount of depreciation expense for 2016 and 2017 using units of production method.

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.)

Banko Inc. manufactures sporting goods. The following information applies to a machine purchased on January 1, 2016:

Explanation / Answer

Solution a:

Cost of machine = Purchase cost + Delivery cost + Installation cost = $82,500 + $3,000 + $1,000 = $86,500

Depreciable cost = Cost - Salvage value = $86,500 - $8,000 = $78,500

Annual depreciation - SLM = $78,500 / 5 = $15,700

Therefore depreciation for 2016 and 2017 under SLM = $15,700

Solution 2:

Depreciation rate SLM = $15,700 / $78,500 = 20%

Depreciation rate double declining = 205*2 = 40%

Depreciation for 2016 = $86,500 * 40% = $34,600

Depreciation expense for 2017 = ($86,500 - $34,600)*40% = $20,760

Solution 3:

Depreciable cost = $78,500

Depreciation for 2016 under unit of production method = $78,500 *53000 / 157,000 = $26,500

Depreciation for 2017 under unit of production method = $78,500 *55000 / 157,000 = $27,500

Solution 4:

MACRS method:

Depreciation expense for 2016 = $86,500 * 14.29% = $12,360.85

Depreciation expense for 2017 = $86,500 * 24.49% = $21,183.85

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