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.b. Under each one of the depreciation methods, calculate the gain/loss from the sale of the machine.

Answer 1

Answer a.

Straight-line Depreciation Method:

Cost of Machine = $11,000
Salvage Value = $500
Useful Life = 7 years

Annual Depreciation = (Cost of Machine - Salvage Value) / Useful Life
Annual Depreciation = ($11,000 - $500) / 7
Annual Depreciation = $1,500

Year 1 2 3 Beginning-Year Annual Accumulated Year-End Book Book Value Depreciation Depreciation Value $ 11,000 $ 1,500 $ 1,500 $ 9,500 $ 9,500 $ 1,500 $ 3,000 $ 8,000 $ 8,000 $ 1,500 $ 4,500 $ 6,500 $ 6,500 $ 1,500 $ 6,000 $ 5,000 $ 5,000 $ 1,500 $ 7,500 $ 3,500 $ 7,500 Total

Double-declining-balance Depreciation Method:

Double-declining-balance Depreciation Rate = 2 / Useful Life
Double-declining-balance Depreciation Rate = 2 / 7

Year Beginning-Year Annual Accumulated Year-End Book | Book Value Depreciation Depreciation Value $ 11,000 $ 3,143 $ 3,143 $ 7,857 $ 7,857 $ 2,245 $ 5,388 $ 5,612 $ 5,612 $ 1,603 $ 6,991 $ 4,009 4,009 $ 1,145 $ 8,137 $ 2,863 $ 818 $ 8,955 $ 2,045 8,955 $ 2,863 Total

Answer b.

Straight-line Depreciation Method:

Gain on Sale of Machine = Proceed from Sale - Book Value of Machine
Gain on Sale of Machine = $6,500 - $3,500
Gain on Sale of Machine = $3,000

Double-declining-balance Depreciation Method:

Gain on Sale of Machine = Proceed from Sale - Book Value of Machine
Gain on Sale of Machine = $6,500 - $2,045
Gain on Sale of Machine = $4,455