Depreciation Choices and Outcome Mulligan Co purchased a new machine on January 1 The following information pertains to the purchase Life of asset5 yearsSalvage value$4,500Purchase price27,000Sales tax1,500Freight cost1,200Electrical set up1,050Custom programming750Estimated annual labor savings5,250Additional revenue generated12,000 a Determine the capitalized cost of the new machine $Answer b Compute annual depreciation, accumulated depreciation and the machine's book value for the first three year assuming i Straight line depreciation ii Double declining balance method Straight Line DepreciationDouble Declining BalanceDepreciation ExpenseAccumulated DepreciationBook Value at Year endDepreciation ExpenseAccumulated DepreciationBook Value at Year EndYear 1Answer Answer Answer Answer Answer Answer Year 2Answer Answer Answer Answer Answer AnswerYear 3Answer Answer Answer Answer Answer Answer c Assume the machine is sold for $12,000 at the end of the third year after depreciation has been calculated Determine the gain or loss assuming i Straight line depreciation ii Double declining balance method Do not use negative signs with your answers below AmountGain or LossStraight lineAnswer Answer gain loss Double decliningAnswer Answer gain loss d Given your answer in part c, if Mulligan was able to perfectly predict the future that the machine would be sold for $12,000 at the end of the third year, which depreciation method should Mulligan choose Ignore taxes Mulligan's overall cash flow results would be greater if the straight line method is used Mulligan's overall cash flow results would be greater if the double declining method is used Mulligan's overall cash flow results would be the same with either depreciation methods

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Depreciation Choices and Outcome. Mulligan Co. purchased a new machine on January 1. The following information pertains to the purchase: Life of asset5 yearsSalvage value$4,500Purchase

Depreciation Choices and Outcome.

Mulligan Co. purchased a new machine on January 1. The following information pertains to the purchase:

Life of asset5 yearsSalvage value$4,500Purchase price27,000Sales tax1,500Freight cost1,200Electrical set-up1,050Custom programming750Estimated annual labor savings5,250Additional revenue generated12,000

a. Determine the capitalized cost of the new machine

$Answer

b. Compute annual depreciation, accumulated depreciation and the machine's book value for the first three year assuming:

i. Straight-line depreciation

ii. Double-declining-balance method

Straight-Line DepreciationDouble-Declining BalanceDepreciation

ExpenseAccumulated

DepreciationBook Value at

Year-endDepreciation

ExpenseAccumulated

DepreciationBook Value at

Year-EndYear 1Answer

Answer

Year 2Answer

Answer

AnswerYear 3Answer

Answer

c. Assume the machine is sold for $12,000 at the end of the third year after depreciation has been calculated.

Determine the gain or loss assuming:

i. Straight-line depreciation

ii. Double-declining balance method

Do not use negative signs with your answers below.

AmountGain or LossStraight-lineAnswer

Answer

gain

loss

Double-decliningAnswer

Answer

gain

loss

d. Given your answer in part c, if Mulligan was able to perfectly predict the future that the machine would be sold for $12,000 at the end of the third year, which depreciation method should Mulligan choose?

Ignore taxes.

Mulligan's overall cash flow results would be greater if the straight-line method is used.

Mulligan's overall cash flow results would be greater if the double-declining method is used.

Mulligan's overall cash flow results would be the same with either depreciation methods.