15-What interest rates should be used in determining the amount of interest to b

Question

15-What interest rates should be used in determining the amount of interest to be capitalizedz How should the amount of interest to be capitalized be determined? 16-Calculate depreciation A machine which cost $500,000 is acquired on October 1, 2017. Its estimated salvage value is $50,000 and its expected life is eight years. Instructions (1) Calculate depreciation expense for 2017 and 2018 by the following method, showing the figures used. (a) Double-declining balance 17-Calculate depreciation. A machine cost $900,000 on April 1, 2017. Its estimated salvage value is $90,000 and its expected life is eight years. Instructions (1) Calculate the depreciation expense (to the nearest dollar) by each of the following methods showing the figures used. (a) Straight-line for 2017 (b) Double-declining balance for 2018 (c) Sum-of-the-years-digits for 2018 (2) Which method would result in the smallest income amount for 2018?

Explanation / Answer

16) Cost = 500000 salvage value = 50000

Depreciable value = 4,50,000

Useful life 8 years. rate of SLM depreciation = 1/8=12.5%

Rate for double declining method = 25%

Depreciation 2017 = 500000 X 25% X 3/12 = 31250

Depreciation 2018 = (500000-31250) X 25% = 117187.5

17) a) cost = 900000, salvage value = 90000, useful life 8 yrs

SLM depreciation rate=1/8 = 12.5%

SLM depreciation 2017= 810000/8 = 101250x3/4=75937.5

B)double declining method :

2017: 900000 X 25% X 9/12 = 168750

2018: (900000-168750) X 25% = 182812.5

C) sum of digits = 8(8+1)/2=36

Yr amount yrs bal % depre 3/4 th bal correct depre 1 810000 8 8/36 180000 135000 45000 135000 2 810000 7 7/36 157500 118125 39375 163125

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