Question

MatthewCompany purchased a new machine on October 1, 2017, at a cost of $145,000. The company estimated that the machine will have a salvage value of $25,000. The machine is expected to be used during its 5-year life.

Instructions

Compute the depreciation expense under the following methods for the year indicated. (a) Straight-line for 2017. (b) Declining-balance using double the straight-line rate for 2017 and 2018.

Answer 1

Requirement a

Depreciation for 2017= $ 6,000

.

Working

Straight line Method
A	Cost	$ 145,000
B	Residual Value	$ 25,000
C=A - B	Depreciable base	$ 120,000
D	Life [in years left ]	5
E=C/D	Annual SLM depreciation	$             24,000.00

.

Depreciation schedule-Straight line method
Year	Book Value	Depreciation expense	Accumulated Depreciation	Ending Book Value
2017	$        145,000.00	$               6,000.00*	$                6,000.00	$            139,000.00
2018	$        139,000.00	$             24,000.00	$             30,000.00	$            115,000.00

*For 3 months.

Requirement b

Depreciation for 2017= $ 14,500

Depreciation for 2018= $ 52,200

Working

Double declining Method
A	Cost	$ 145,000
B	Residual Value	$ 25,000
C=A - B	Depreciable base	$ 120,000
D	Life [in years]	5
E=C/D	Annual SLM depreciation	$ 24,000
F=E/C	SLM Rate	20.00%
G=F x 2	DDB Rate	40.00%

.

Depreciation schedule-Double declining
Year	Beginning Book Value	Depreciation rate	Depreciation expense	Accumulated Depreciation	Ending Book Value
2017	$ 145,000	40.00%	$ 14,500	$ 14,500	$ 130,500
2018	$ 130,500	40.00%	$ 52,200	$ 66,700	$ 78,300