Question

E9-6 Xanadu A/S purchased a new machine on October 1, 2017, at a cost of €96,000. The company estimated that the machine will have a residual value of €12,000. The machine is expected to be used for 10,000 working hours during its 5-year life. Determine depreciation for partial periods. (LO2) Instructions Compute the depreciation expense under the following methods for the year indicated. (a) Straight-line for 2017. (b) Units-of-activity for 2017, assuming machine usage was 1,700 hours. (c) Declining-balance using double the straight-line rate for 2017 and 2018.

Answer 1

Answer:

(a) Straight line depreciation for 2017 is as follows:

Straight line depreciation = (Cost - Residual value) / Useful life

= (96,000 - 12,000) / 5 years

= 16,800

Depreciation for 2017 for 3 months (October,November and December) = 16,800 * 3/12

= 4,200

Hence,Straight line depreciation for 2017 is 4,200.

(b) Units of activity depreciation for 2017 is as follows:

Units of activity depreciation = [(Cost - Residual value) / Working hours] * Usage

= [(96,000 - 12,000) / 10,000] * 1,700

= 14,280

Hence, Units of activity depreciation for 2017 is 14,280.

(c)

Double declining depreciation rate = 16,800 / (96,000 -12,000) * 2 = 40%

So, Depreciation for-

2017 = 96,000 * 40% * 3/12 = 9,600

2018 = (96,000 - 9,600) * 40% = 34,560

  

  

  

Answer 2

1. The following expenditures were incurred by Rosenberg Company in purchasing
   land: cash price $64,000, accrued taxes $3,000, attorneys’ fees $2,500, real estate

broker’s commission $2,000, and clearing and grading $3,800. What is the cost of the

land?