Question

Current Attempt in Progress On September 19, 2017 Swifty Corporation purchased machinery for $480000. Salvage value was estimated to be $25000. The machinery will be depreciated over eight years using the sum of the years.dipits method of depreciation is computed on the basis of the nearest full month. Swifty should record depreciation expense for 2018 on this machinery of

Answer 1

1) Sum of years (total life of machine) = 8+7+6+5+4+3+2+1 = 36

Depreciation from 1 Jan 2018 to 31 Aug 2018 = (Cost - Residual value)*8/36*9/12

= ($480,000 - $25,000)*8/36*9/12 = $75,833

Depreciation from 1 Sep 2018 to 31 Dec 2018 = ($480,000 - $25,000)*7/36*3/12

= $22,118

Depreciation expense for 2018 = $75,833+$22,118 = $97,951

Therefore Swifty should record depreciation expense for 2018 on this machinery of $97,951.

(As machine was purchased on 19 Sep, 2017, the period in 2017 is rounded off to nearest month i.e. 3 months and remaining 9 months for the first year is in 2018).

2) Depreciation expense per year under Straight line = (Cost - Salvage Value)/Useful Life

= ($1,270,000 - $85,000)/5 yrs = $237,000 per year

Depreciation for 2018 up to May 1 (i.e. for four months) = $237,000*4/12

= $79,000

Accumulated depreciation till date of sale (i.e. from Jan 1, 2014 to May 1, 2018)

= ($237,000*4 yrs)+$79,000 = $1,027,000

Book value on May 1, 2018 = Cost - Accumulated Depreciation

= $1,270,000 - $1,027,000 = $243,000

Sale price of machinery = Book Value on date of sale+Gain on sale

= $243,000+$26,500 = $269,500

Therefore Crane would receive $269,500 from the sale of the machinery.