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Double-declining-balance (1) Straight-line method (2) Sum-of-the-years'-digits method (3) method P11-12 (LOI,6) EXCEL (Depreciation-SL, DDB, SYD, Act., and MACRS) On January 1, 2016?Locke Company, a small machine-tool manufacturer, acquired for $1,260,000 a piece of new industrial equipment. The new equipment had a useful life of 5 years, and the salvage value was estimated to be $60,000. Locke estimates that the new equipment can produce 12,000 machine tools in its first year. It estimates that production will decline by 1,000 units per year over the remaining useful life of the equipment The following depreciation methods may be used:(1) straight-line,(2) double-declining-balance, (3) sum-of-the-years-digits and (4) units-of-output. For tax purposes, the class life is 7 years. Use the MACRS tables for computing depreciation. Instructions la) Which depreciation method would maximize net income for financial statement reporting for the 3-year period ending December 31, 2018? Prepare a schedule showing the amount of accumulated depreciation at December 31, 2018, under the method selected. Ignore present value, income tax, and deferred income tax considerations. (b) Which depreciation method (MACRS or optional straight-line) would minimize net income for income tax reporting for the 3-year period ending December 31, 2018? Determine the amount of accumulated depreciation at December 31, 2018. Ignore present value considerations. AICPA adapted)Explanation / Answer
A)Straight line method :
Depreciation per year = (cost -salvage value )/ useful life
= (1,260,000 - 60,000) /5
= 1,200,000 /5
= $ 240,000 per year.
Accumulated depreciation for a 3 year period = 240,000 *3 = 720,000
2)Double declining balance:
Depreciation rate = (1/5 ) *2 = 2/ 5 = 40%
Depreciation for 3 year ended = 987,840
3)Sum of years digit :
sum of year digit = n(n + 1) /2 where n = life of asset= 5
= 5(5+1 ) /2
= 5*6 /2
= 30 /2 = 15
Formula = (cost -salvage) *remaining useful life/ sum of years digit
Depreciation for 3 year period = 960,000
4)depreciation rate per units = (cost -salvage) /estimated life in units
=(1260000- 60000) /50000
= 1200000 /50000
= $ 24 per unit
depreciation = 792000
year Balance at beginning (A) Depreciation B= (.40 *A) Accumulated depreciation C= (B+ previous balance) Balance at end (A-B ) 2013 1260000 504000 [1260000*.40] 504000 756000 [1260000-504000] 2014 756000 302400 [756000*.40] 806400 [504000+302400] 453600 [756000-302400] 2015 453600 181440 [453600*.40] 987840 [806400+181440]Related Questions
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