? ezio.mbeducation.com/hm.tpx Freedom Co. purchased a new machine on July 2, 201

Question

? ezio.mbeducation.com/hm.tpx Freedom Co. purchased a new machine on July 2, 2016, at a total installed cost of $42.000. Required: a1. Calculate the depreciation expense for each year of the asset's life using Straight-ine depreciation. an estimated ife of five years and an estimated salvage value of $6,600. Year a-2. Calculate the depreciation expense for each year of the assets lfe using Double-declining-balance depreciation. Year b. How much depreciation expense should be e orded by Freedom Co. for its 5scal year ended Decomber 31, 2016, under oach method? Nee. The machine w year of ife. have bee used for anet af of its f- MacBook A

Explanation / Answer

(a-1).

Year

Depreciation Expense

1

$3540

2

$7080

3

$7080

4

$7080

5

$7080

Explanation;

Cost of machine is given = $42000

Salvage value is given = $6600

Useful life = 5 years

Hence annual depreciation as per straight line method will be ($42000 - $6600 / 5) = $7080

But in year 1, machine is used for 6 months so depreciation expense will be ($7080 / 2) = $3540

(a-2).

Year

Depreciation Expense

1

$8400

2

$13440

3

$8064

4

$4838.40

5

$657.60

Explanation;

Rate of depreciation will be (1 / 5) = 20%

But as per double-declining balance method rate of depreciation will be (20% * 2) = 40%

So yearly depreciation will be calculated as follow;

Year

Starting Book value

Depreciation

Ending book value

1

$42000

($42000 * 0.4) * ½ = $8400

$33600

2

$33600

($33600 * 0.4) = $13440

$20160

3

$20160

($20160 * 0.4) = $8064

$12096

4

$12096

($12096 * 0.4) = $4838.40

$7257.60

5

$7257.60

($7257.60 - $6600) = $657.60

$6600 (It is given)

(b).

Depreciation Expense

Straight line method

$3540

Double-declining balance method

$8400

(c).

Cost

Accumulated depreciation

Net book value

Straight line method

$42000

($3540 + $7080) = $10620

$31380

Double-declining balance method

$42000

($8400 + $13440) = $21840

$20160

Year

Depreciation Expense

1

$3540

2

$7080

3

$7080

4

$7080

5

$7080

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