Problem 11-1 Novak Company purchased Machine #201 on May 1, 2017. The following

Question

Problem 11-1 Novak Company purchased Machine #201 on May 1, 2017. The following information relating to Machine #201 was gathered at the end of May. Price Credit terms Freight-in Preparation and installation costs Labor costs during regular production operations $14,280 $115,600 /10, n/30 1,088 5,168 It is expected that the machine could be used for 10 years, after which the salvage value would be zero. Novak intends to use the machine for only 8 years, however, after which it expects to be able to sell it for $2,040. The invoice for Machine #201 was paid May 5, 2017, Novak uses the calendar year as the basis for the preparation of financial statements. Your answer is partially correct. Try again. Compute the depreciation expense for the years indicated using the following methods. Depreciation Expense 9792 (1) Straight-line method for 2017 (2) Sum-of-the-years'-digits method for 2018 (3) Double-declining-balance method for 2017 22028 39848

Explanation / Answer

1. Straight line method:

Depreciation = Cost of asset - Salvage value / Estimated life of asset

Cost of asset = $115600 - $2312 + $1088 +$5168

= $119544

Depreciation = $119544 - $2040 / 8 years

= $14688 per year

Depreciation for 2017 = $14688 * 8/12

= $9792.

Sum of years digits method:

Sum of years digits = 1 + 2+ 3 + 4 + 5 + 6 + 7 + 8 = 36

2017 depreciation = ($119544 - $2040) * 8/36 * 8/12 = $17408

2018 depreciation = ($119544 - $2040) * 8/36 * 4 /12 = $8704

depreciation = ($119544 - $2040) * 7/36 * 8/12 = $15232.

Double declining method :

Straight line depreciation percent = 100% / 8 = 12.5%

Straight line depreciation rate = 12.5% * 2 = 25%

Depreciation = $119544 * 25% * 8/12

= $19924.

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