Question

Problem 8-30A Calculating depreciation expense using four different methods LO 8-2, 8-3, 8-4, 8-6 Banko Inc. manufactures sporting goods. The following information applies to a machine purchased on January 1, Year 1: Purchase price Delivery cost Installation charge Estimated life Estimated units Salvage estimate $ 70,000 $ 3,000 $ 1,000 5 years 140.000 $ 4,000 During Year 1, the machine produced 36,000 units, and during Year 2 it produced 38,000 units. Required a. Determine the amount of depreciation expense for Year 1 and Year 2 using straight-line method. b. Determine the amount of depreciation expense for Year 1 and Year 2 using double-declining-balance method. c. Determine the amount of depreciation expense for Year 1 and Year 2 using units of production method. d. Determine the amount of depreciation expense for Year 1 and Year 2 using MACRS, assuming that the machine is classified as seven-year property. (Round your answers to the nearest dollar amount.)

Answer 1

S S b Depreciation expense Depreciation expense Depreciation expense Depreciation expense Year 1 14,000S 29,600S 18,000S 10,575 S Year 2 14,000 17,760 19,000 18,123 d S Purchase price of Machine Add : Delivery cost Add : Installation charges Total Cost of Machine Less : Slavage value Depreciable cost of machine Estimated life 70,000 3,000 1,000 74,000 (4,000) 70,000 5 years S Straight line method: Yearly Depreciation expense = Depreciable cost/Useful life = $ 70000 / 5 = $ 14000 Therefore, Depreciation expenses for the year 1 = 14000 Depreciation expenses for the year 2 = 14000 Depreciation expense is same for all years under Straight line method.

Double declining method: Depreciation Rate = 1/ Useful life of Asset *2*100 = 1/5*2*100 = 40% Depreciation expense for the year 1= S 74000 + 40% = S 29600 Depreciation expense for the year 2 = (S 74000 - $ 29600) * 40% = $ 17760 Units of Production method : Depreciable cost per Unit = Total Depreciable Cost / Total Units for Useful life = S 70000 / 140000 = 0.50 Depreciation expense for the year 1 = Units produced * Depreciable cost per unit = 36000 * S 0.50 = $ 18,000 Depreciation expense for the year 2 = Units produced * Depreciable cost per unit = 38000 * S 0.50 = $ 19,000 Depreciation Under MACRS: Depreciation expense = Cost of asset * Depreciation rate from MACRS table Cost of Asset Depreciation Rate Depreciation expense Year 1 74,000S 14.29% 10,575S Year 2 74,000 24.49% 18,123