Question
Use the following table to complete the next two questions. Assume all machinery is bought at the first of the year. Machine Cost Salvage Value
Use the following table to complete the next two questions. Assume all machinery is bought at the first of the year.
| Machine | Cost | Salvage Value | Useful Life |
| Tractor A | $60,000 | $10,000 | 5 |
| Tractor B | $60,000 | $0 | 5 |
| Combine | $80,000 | $10,000 | 7 |
Calculate annual depreciation for each piece of equipment above using the straight-line method. (Show work)
(cost-salvage)/useful life
Tractor A: (60,000-10,000)/5= $10,000
Tractor B: (60,000)/5= $12,000
Combine: (80,000-10,000)/7= $10,000
Now Calculate annual depreciation using double declining balance. Be careful not to exceed the salvage value. If the salvage value is zero you should just take any remaining depreciation in the last year of its useful life (i.e. switch to S.L. in last year).
| Tractor A | Tractor B | Combine | ||||
| Book Value | Depreciation | Book Value | Depreciation | Book value | Depreciation | |
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| Year 2 |
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| Year 3 |
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| Year 4 |
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| Year 5 |
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| Year 6 | X | X | X | X |
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| Year 7 | X | X | X | X |
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Depreciation Records. I.M. Farmer lost all depreciation records from past years and needs help reconstructing a depreciation schedule through 2016. From the following information, calculate the depreciation for each item for each appropriate year. For items purchased during the year, only a prorated part of the first years depreciation can be taken (Assume Calendar Year). Use the attached form and complete all columns including the totals. Watch the purchase dates and begin depreciation in the year of the purchase, not before.
For convenience, round everything to the nearest whole dollar.
| Purchase Date | Item | Method | Useful Life | Cost | Salvage Value |
| 1/1/2013 | Truck | S.L. | 10 | $40,000 | $10,000 |
| 7/1/2014 | Combine | DDB | 10 | $300,000 | $20,000 |
| 1/1/2014 | Pickup | DDB and S.L.* | 8 | $28,000 | $4,000 |
| *Use DDB for 2014 and 2015, then switch to S.L. for 2016 | |||||
| 2013 | 2014 | 2015 | 2016 | |||||||||
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| Date |
| Salvage |
| Book | Depre- | Book | Depre- | Book | Depre- | Book | Depre- |
| Item | Purchased | Cost | Value | Useful Life | value | ciation | value | ciation | value | ciation | value | ciation |
| Truck | 1/1/2013 | $40,000 | $10,000 | 10 |
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| Combine | 7/1/2014 | $300,000 | $20,000 | 10 | X | X |
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| Pickup | 1/1/2014 | $28,000 | $4,000 | 8 | X | X |
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| Totals |
| $0 |
| $0 |
| $0 |
| $0 |
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Short Term Financial Management
Authors: John Zietlow, Matthew Hill, Terry Maness
5th Edition
1516512405, 9781516512409
