Banko Inc. manufactures sporting goods. The following information applies to a m
ID: 2597114 • Letter: B
Question
Banko Inc. manufactures sporting goods. The following information applies to a machine purchased on January 1, 2016:
Purchase price $ 70,500
Delivery cost $ 6,000
Installation charge $ 1,000
Estimated life 5 years
Estimated units 149,000
Salvage estimate $ 3,000
During 2016, the machine produced 45,000 units and during 2017, it produced 47,000 units.
Required:
a. Determine the amount of depreciation expense for 2016 and 2017 using straight-line method.
b. Determine the amount of depreciation expense for 2016 and 2017 using double - declining - balance method.
c. Determine the amount of depreciation expense for 2016 and 2017 using units of production method.
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 answer to the nearest dollar amount.)
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 4.46Explanation / Answer
Answer:
First of all we will find total cost of the Machine
Purchase price of the machine
$ 70,500
Delivery cost
6,000
Installation charges
1,000
Total cost of machine
$ 77,500
1
Straight line depreciation calculation
Annual depreciation expense =
Cost - Salvage value
Useful life in years
Annual depreciation expense =
77500-3000
5
Annual depreciation expense =
$74,500
5
Annual depreciation expense =
$14,900
Depreciation Schedule - Straight Line Method
Year
Assets
Depriciable
Depreciation
Accumulated
Book
cost
cost
rate
Expense
Depreciation
value
2016
77,500
$74,500
1/5 x 12/12
$14,900
$14,900
$59,600
2017
$74,500
1/5 x 12/12
$14,900
$29,800
$44,700
Year
Dep .Expense
2,016
14,900
2,017
14,900
_________________________________________________-
2
Double declining balance method
DDB depreciation rate = (100% / 5) x 2
DDB depreciation rate = 40%
Depreciation Schedule - Double Declining Balance Method
Year
Acquisition
Beginning
Depreciation
Accumulated
Book
cost
Value
Rate
Expense
Depreciation
value
2016
$77,500
$77,500
40%
$31,000
$31,000
$46,500
2017
$77,500
$46,500
40%
$18,600
$49,600
$27,900
Year
Depreciation
2,016
31,000
2,017
18,600
_________________________________________________________-----
3
Units of production method
Depreciation expense per mile =
Cost - Salvage value
Useful life in miles
Depreciation expense per mile =
77500-3000
140,000
Depreciation expense per mile =
$74,500
149,000
Depreciation expense per mile =
$0.50
Depreciation Schedule - Units of Production Method
Year
Assets
per unit
Units
Depreciation
Accumulated
Book
cost
cost
Produced
Expense
Depreciation
value
2016
77,500
$0.50
45,000
$22,500
$22,500
$55,000
2017
55,000
$0.50
47,000
$23,500
$46,000
$31,500
Year
Depreciation
2,016
22,500
2,017
23,500
_____________________________________________________-----
4
MACRS Method for 7 year
Depreciation Schedule - MACRS Method
Year
Acquisition
Depreciation
Accumulated
Book
cost
Rate
Expense
Depreciation
value
2016
77,500
14.29%
11,075
11,075
66,425
2017
77,500
24.49%
18,980
30,055
27,900
Purchase price of the machine
$ 70,500
Delivery cost
6,000
Installation charges
1,000
Total cost of machine
$ 77,500
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.