Question

A machine purchased for $50,000 has a depreciable life of four years. It will have an expected salvage value of $ 6,000 at the end of the depreciable life. 1. Using the straight-line method, what is the book value at the end of year 2? a. $27,000 b. $ 28,000 c. $35,000 d. $25,000 2. If the double-declining balance (200% DB) method is used, what is the depreciation amount for year 2? a. $10,000 b. $12,500 c. $20,000 d. $17,500 3. Suppose the salvage value at the end of year 4 is estimated to be $10,000 instead of $6,000. If the 200% method is used, what is the depreciation amount for year 3? a. $6,250 b. $10,000 c. $2,500 d. $ 6,000 4. Daytona Limousine Services owns 20 limos and uses the units of production method in computing depreciations on its limos. Each limo costing $40,000 is expected to be driven 200,000 miles and is expected to have a salvage value of $6,000. Limo # 1 was driven 36,000 miles in year 1. The book value of limo #1 at the end of year 1 is: a. $24,460 b. $26,840 c. $27,880 d. $32,800 5. Micaplex bought four Volt Cells at a price of $300,000 each. At the delivery, Micaplex paid freight charges of $35,000 and handling fees of $20,000. Site preparation for these cells cost $50,000. Six employees, each earning $15 an hour, worked five 40-hour weeks to set up and test the manufacturing cells. Special wiring and other materials applicable to the new cells cost $3,000. The cost basis for these cells is: a. $1,591,000 b. 1,426,000 c. $1,500,000 d. 1,326,000

Answer 1

Ank 1 Book value of machine at the end of years is $ 28.000, Non- Book value at the beginning of the year. 1 Less! Depreciation for year. Book Value at the beginning of Yean, L (two sto Less! Depreciation for year. 2 Book value at the end of year. 2 $ 50.000 $ 11000 $39.000 $ 11000 28 000 * Depreciation as per SLM. = cost of assets - Salvage value use of assess 5 A 50000 - $ 6000 4 years = $ 11000

2) If the double-declining balance (2001-DB method is used then the amount of $ 12500 depreciation is for the year 2. Honce amount of depreciation for year 2 is $ 12500 Note: Depreciation hate= (/useful life) x 100 4 x 100 5254 Double-declining balance = 2x cost of assets & Depreciation nate value of assets as on yean. I . $50.000 Less: Double declining - Depreciation as pen Double $ 25000 - - declining method Yean. I (24$ 50.000X 25.)_ value of assets as onyean. 2 $25000 cess! Depreciation for year 2 1050 (2125000 y 254.). $ 2500 value of assess as on year 2 & 12500

3 Amound is for on depreciation as pen 2004.DA year 3 is $ 6250 $ 12500 6250 note! value of machine at the beginning of the Year 3 (as calculated i Cabove Lesst Depreciation for the year 3 tosoox (2X$12,500 x 25.4.) value at the beginning 6256 of the year y at the end The book value of limo #1 of year 1 is $ 27,880 note, value of limo year as at the beginning of the $ 4oooo yean to do the Less! Depreciation yeant Fol No. of units produced x cost - scrap valul - life in no. of units F 36,000 X{844.000 $6.000) ] (6120) L 200000 (0.18 X34000 em Salvage value (6000) Book vare at the end of year 1. & 27880

cen is. $ 1326 000 as Amount ($ $1200000 5 Cost basis of these follows! Particulars In cost of four volt cells atte (9 300.000 X4. 25 freight changes Add: handling fees Add! Site prepanation Cost Add! Sin employees Cost (G X$L5 X40X5 ) Add! Special wiring and other cast $ 35000 § 20 000 $ 50000 $ 18000 $ 3000 $_1326,000