Waterway Company purchased Machine #201 on May 1, 2017. The following informatio
ID: 2541291 • Letter: W
Question
Waterway Company purchased Machine #201 on May 1, 2017. The following information relating to Machine #201 was gathered at the end of May.Price $86,700 Credit terms 2/10, n/30 Freight-in $ 816 Preparation and installation costs $ 3,876 Labor costs during regular production operations $10,710
It is expected that the machine could be used for 10 years, after which the salvage value would be zero. Waterway intends to use the machine for only 8 years, however, after which it expects to be able to sell it for $1,530. The invoice for Machine #201 was paid May 5, 2017. Waterway uses the calendar year as the basis for the preparation of financial statements.
Explanation / Answer
(1) Depreciation under straight line method for 2017
Total cost = $86700
Add Fright and installation (816+3876) = 4692
Less: Credit terms = 1734
Depreciable Value 89658
Life 8
Annual depreciation = (89658/8) = 11207
Partial depreciation = 11207*(8/12) = 7471 (8 of 12 months)
(2) Depreciation expenses using sum of the year digits method for 2018
86700 * (8/36) = 19267
86700 * (7/36) = 16858
86700 * (6/36) = 14450
(3) Depreciation using double declining method for 2017
double declining depreciation rate = (100%/8)*2 = 25%
86700*25% = 21675 depreciation 1 year
(86700-21675)*25% = 16256 depreciation 2 year
(86700- 16256)*25% = 17611 depreciation 3 year
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