Banko Inc. manufactures sporting goods. The following information applies to a m
ID: 2599896 • Letter: B
Question
Banko Inc. manufactures sporting goods. The following information applies to a machine purchased on January 1, 2016: S 75,000 S 3,000 s 2,000 Purchase price Delivery cost Installation charge Estimated ife Estimated units Salvage estimate 5 years 154,000 S 3,000 During 2016, the machine produced 50,000 units and during 2017, it produced 52,000 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. 20162017 Depreciation expense c. Determine the amount of depreciation expense for 2016 and 2017 using units of production method 2016 2017 Depreciation expense 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 7-Year Year property% 14.29 24 49 17 49 12 49 8 93 8 92 8 93 4.46 property.% 20 00 3200 11.52 11 52 5 76 2016 Cepre: ation expenseExplanation / Answer
Cost of Machine = Purchase price + Delivery cost + Installation cost
= 75,000 + 3,000 + 2,000
Cost of Machine = $80,000
Straight Line Method
Depreciation per year = (Cost – Salvage value) / Useful years
= (80,000 – 3,000) / 5 Years
= $15,400 per year
Year
Depreciation
2016
$15,400
2017
$15,400
Units of Production Method
Total Units = 154,000 Units
Depreciation = (Produced Units / Total Units) * (Cost – Salvage Value)
2016 = (50,000/154,000) Units * (80,000 - 3,000)
2016 = $25,000
2017 = (52,000/154,000) Units * (80,000 - 3,000)
2017 = $26,000
Double Declining Balance
In double declining method the rate of Depreciation will be:
= 2 * Straight Line Rate
= 2 * 20% (Life is 5 years so 20% each year)
= 40%
Depreciation = Book Value * Rate
Year
Depreciation
Book Value
(Beginning balance)
2016
32,000 (80,000*40%)
80,000
2017
19,200
(48,000*40%)
48,000
MACRS Method
Depreciation = Rate * Cost
Year
Depreciation
Rate
Depreciation
2016
20%
16,000
(80,000*20%)
2017
32%
25,600
(80,000*32%)
Year
Depreciation
2016
$15,400
2017
$15,400
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