(a) Martinez Company purchased Machine #201 on May 1, 2017. The following inform
ID: 2579750 • Letter: #
Question
(a)
Martinez Company purchased Machine #201 on May 1, 2017. The following information relating to Machine #201 was gathered at the end of May.Price $103,700 Credit terms 2/10, n/30 Freight-in $ 976 Preparation and installation costs $ 4,636 Labor costs during regular production operations $12,810
It is expected that the machine could be used for 10 years, after which the salvage value would be zero. Martinez intends to use the machine for only 8 years, however, after which it expects to be able to sell it for $1,830. The invoice for Machine #201 was paid May 5, 2017. Martinez uses the calendar year as the basis for the preparation of financial statements.
Explanation / Answer
Ans. Depreciation Expense 1 Straight-line mehtods for 2017 8784 2 Sum-of-years'-digits method for 2018 23490 3 Double-declining-balance method for 2017 17873 Depreciable Value = Purchase Price - discount + Freight + installation - Salvage Vaule 103700 - 2074 + 976 + 4636 - 1830 105408 Depreciation : Straight line = (Depreciable Value / Life in years) * 8/12 (105408 / 8) * 8 / 12 8784 Sum of year : Sum of life of years = (8+7+6+5+4+3+2+1) = 36 Year 2017 2018 8 / 36 * 105408 23424 15616 7808 7 / 36 * 105408 20496 13664 23490 *2017 depreciation = 23424 * 8 / 12 *2018 depreciation = (23424*4/12) + (20496*8/12) DOUBLE DECLINING DEPRECIATION: Depreciable Value * Depreciation rate * 8 / 12 107238 * 25% * 8 / 12 17873 Depreciable Value = Purchase price - discount + freight + installation 103700 - 2074 + 976 + 4636 107238 Depreciation Rate = 100 / life * 2 100 / 8 * 2 25%
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