Lockard Company purchased machinery on January 1, 2014, for $184,640. The machin

Question

Lockard Company purchased machinery on January 1, 2014, for $184,640. The machinery is estimated to have a salvage value of $18,464 after a useful life of 8 years.

a) Compute 2014 depreciation expense using the sum-of-the-years'-digits method.

b) Compute 2014 depreciation expense using the sum-of-the-years’-digits method assuming the machinery was purchased on April 1,2014

c)Compute 2014 depreciation expense using the double-declining-balance method.

d)Compute 2014 depreciation expense using the double-declining-balance method assuming the machinery was purchased on October 1,2014.

Explanation / Answer

a) Sum of the years digit = n(n+1)/2    = 8 ( 8+1)/2    = 36 Date of purchase Cost Salvage Value Depriciable base Number of years Months left in Depriciation A B C= A-B D 1st year C*D/36 January 1 2014 184640 18464 166176 8 36928 Depriciation for 2014 = 36928 b) Date of purchase Cost Salvage Value Depriciable base Number of years Months left in Depriciation Depriciation A B C= A-B D 1st year E = C*D/36 for 2014 for whole year E *0.75 April 1 2014 184640 18464 166176 8 9/12=0.75 36928 27696 Depriciation for 2014 = 27696 c) Double declining balance method Double declining rate = 2 * SLM Rate SLM Depriciation pa = 184640/8 = 23080 SLM Rate = 23080 / 184640 * 100 = 12.5% Double declining rate = 2 * SLM Rate         = 2* 12.5         = 25% Date of purchase Net book value Double declining Net Book value balance depriciation end of the year January 1 2014 184640 46160 138480 (184640*25%) Depriciation for 2014 = 46160 d) Date of purchase Net book value Double declining Double declining balance depriciation balance depriciation pa for 3 months October 1 2014 184640 46160 11540 (184640*25%) (46160/12*3) Depriciation for 2014 = 11540

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