Question

Millco Inc., acquired a machine that cost $496,000 early in 2019. The machine is expected to last for eighth years, and its estimated salvage value at the end of its life is $70,000. Required: a. Using straight-line depreciation, calculate the depreciation expense to be recognized in the first year of the machine's life and calculate the accumulated depreciation after the fifth year of the machine's life. Depreciation expense | Accumulated depreciation b. Using declining-balance depreciation at twice the straight-line rate, calculate the depreciation expense for the third year of the machine's life. Depreciation expense

Answer 1

a.) Using straight-line depreciation, the depreciation expense to be recognized in the first year of the machine's life is $53,250 and the accumulated depreciation after the fifth year of the machine's life is $266,250.

Calculations:

1: The yearly depreciation under straight-line method is $53,250 {($496,000-$70,000)/8}.

2: The accumulated depreciation under straight-line method at the end of fifth year is $266,250 ($53,250 x 5).

b. Using declining-balance depreciation at twice the straight-line rate, the depreciation expense for the third year of the machine's life is $69,750

Calculations:

1:  The double declining rate is 25% (1/8 x 2 x 100).

2: Depreciation expense for 1st year=$496,000*025=$124,000 Remaining value=$372000

  Depreciation expense for 1st year=$372,000*025=$93,000 Remaining value=$279,000

  Depreciation expense for 1st year=$279,000*025=$69,750

c. The net book value of the machine at the end of its eighth year of use before it is disposed of, under each depreciation method would be $70,000.

*The salvage value of the asset is not change by the method of depreciation used because the depreciation expense is only provided up to the depreciable value of the asset.