Question

Question 2: Company Telviv is a large computer hardware manufacturer. On January 1st the company buys a new machine. The cost of the machine totals to $11,000 and includes the follows: Cost of machine: $9,000 Cost of delivery: $2,000 The machine is expected to work for 7 years, by the end of the seventh year the company expects to sell the machine for $500. After five years the company decides to sell the machine, the price received for the machine is $6,500. Required For each of the depreciation methods (straight line, double declining) do the following: a. Calculate the Depreciation expense, Accumulated depreciation and Machine, net, for the first 5 years of its operations. Year 1 Year 2 Year 3 Year 4 Year 5 Depreciation expense Accumulated depreciation Machine, net b. Under each one of the depreciation methods, calculate the gain/loss from the sale of the machine.

Answer 1

1	Straight line
		Year 1	Year 2	Year 3	Year 4	Year 5
	Depreciation expense	$1,500	$1,500	$1,500	$1,500	$1,500
	Accumulated depreciation	$1,500	$3,000	$4,500	$6,000	$7,500
	Machine, Net	$9,500	$8,000	$6,500	$5,000	$3,500
	Working
	Depreciation per year = ($11,000 - $500)/ 7 years = $1,500
	Double-declining method
		Year 1	Year 2	Year 3	Year 4	Year 5
	Depreciation expense	$3,143	$2,245	$1,603	$1,145	$818
	Accumulated depreciation	$3,143	$5,388	$6,991	$8,137	$8,955
	Machine, Net	$7,857	$5,612	$4,009	$2,863	$2,045
2	Straight line
	Machine, net after 5 years	$3,500
	Sale value	$6,500
	Gain/(Loss)	$3,000
	Double-declining method
	Machine, net after 5 years	$2,045
	Sale value	$6,500
	Gain/(Loss)	$4,455