Question

Problem 11-1 Blossom Company purchased Machine #201 on May 1, 2017. The following information relating to Machine #201 was gathered at the end of May. Price $105,400 Credit terms 2/10, n/30 Freight-in $ 992 Preparation and installation costs $ 4,712 Labor costs during regular production operations $13,020 It is expected that the machine could be used for 10 years, after which the salvage value would be zero. Blossom intends to use the machine for only 8 years, however, after which it expects to be able to sell it for $1,860. The invoice for Machine #201 was paid May 5, 2017. Blossom uses the calendar year as the basis for the preparation of financial statements.

Compute the depreciation expense for the years indicated using the following methods. Depreciation Expense (1) Straight-line method for 2017 $ (2) Sum-of-the-years'-digits method for 2018 $ (3) Double-declining-balance method for 2017 $

Suppose Kate Crow, the president of Blossom, tells you that because the company is a new organization, she expects it will be several years before production and sales reach optimum levels. She asks you to recommend a depreciation method that will allocate less of the company’s depreciation expense to the early years and more to later years of the assets' lives. What method would you recommend?

Answer 1

Answer and Explanation: a Price 105 400 Damunt installation cout -20 992. 4912 -180 07.126 Potporation and Callage value Dentable entf * Discount 105 400 12 2108 1b Studiet live method :- 107,135 X 8928 Double Defing - einble cost + Salvage value (207,156 +486) >169 996 t = 18,166. = 108, 396 SYD 2013 2012 (102136 ) = 15,672 (207136 X 1/4 x 4 = 7,936 73 20,832 Total I suggest the declining method o the amount Martiable because at redute. time goes