Question

Metlock Company purchased Machine 1201 on May 1, 2020. The following information relating to Machine #201 was gathered at the end of May. Price Credit terms Freight-in Preparation and installation costs Labor costs during regular production operations $102,000 2/10, 1/30 $ 960 $4,560 $12,600 It is expected that the machine could be used for 10 years after which the salvage value would be zero, Metlock intends to use the machine for only 8 years, however, after which it expects to be able to sell it for $1.800. The invoice for Machine 8201 was paid May 5, 2020. Metlock uses the calendar year as the basis for the preparation of financial statements. X Your answer is incorrect Compute the depreciation expense for the years indicated using the following methods Depreciation Expense (1) Straight line method for 2020 Sum of the years.digits method for 2021 5 121 3 Double-dediming balance method for 2020

Answer 1

Purchase price = Price + Freight in + Preparation and installation cost - discount - salvage value

=>[$102,000 + 960 + 4,560 - (102,000 * 2%) - 1,800] = $103,680.

1) Straight line method.

Depreciation = Cost of the machine ÷ Useful life.

=> $103,680 ÷ 8 = $12,960 * 8/12 =$8,640.

2)Sum of years digit method.

Sum of years = n(n+1)/2 => (8 * 9)/2 = 36.

Depreciation = $ 103,680 * 8/36 * 8/12 = $15,360.

3) Double declining balance method :-

Depreciation = ($103,680 + 1,800) * (2/8) * (8/12) = $17,580.

If you have any doubts please comment on the answer.