Question

Maserati Corporation purchased a new machine for its assembly process on August 1, 2014. The cost of this machine was $150,000. The company estimated that the machine would have a salvage value of $24,000 at the end of its service life. Its life is estimated at 5 years and its working hours are estimated at 21,000 hours. Year-end is December 31.

Instructions:

Compute the depreciation expense under the

following methods.

(a) Straight-line depreciation.

Sum-of-the-Years’-Digits Method

Double-Declining Balance Method

Answer 1

(a) Straight-line depreciation. Sum-of-the-Years'-Digits Method Double-Declining Balance Method $ 10,500 $17,500 $ 25,000 Working Notes: Cost of machine = $150.000 Salvage Value = $24,000 Estimated useful Life = 5 years Straight Line Depreciation = (Cost of machine - salvage value)/Useful Life = ($150,000-$24,000)/5 = $25,200 Depreciation on December 31 = $25,200*5/12 = $10,500 Sum of the vears digits method Sum of years digits = 5+4+3+2+1 = 15 Depreciation on December 31 = ($150,000-$24,000)*5/15*5/12 = $17,500 Double Decling Balance Method Depreciation rate = 1/5*100*2 = 40% Depreciation on December 31 = $150,000*40%*5/12 = $25,000