Porter, Inc., acquired a machine that cost $720,000 on October 1, 2010. The mach
ID: 2347267 • Letter: P
Question
Porter, Inc., acquired a machine that cost $720,000 on October 1, 2010. The machine is expected to have a four-year useful life and an estimated salvage value of $80,000 at the end of its life. Porter, Inc., uses the calendar year for financial reporting. Depreciation expense for one-fourth of a year was recorded in 2010.
Using the double-declining-balance depreciation method, calculate the depreciation expense for the year ended December 31, 2012, and the net book value of the machine at that date.
Explanation / Answer
Straight line rate is 1/4 = .25 Double declining rate is twice straight line rate or .25*2 = .5 Double declining does not take salvage value into consideration in calculation but does not depreciate to below salvage. depreciation in 2010: 720,000*.5*3/12 = 90,000. Book value at end of 2010 = 720,000 - 90,000 = 630,000 depreciaiton in 2011: 630,000*.5 = 315,000 book value at end of 2011 = 630,000 - 315,000 = 315,000 Depreciation in 2012: 315,000*.5 = 157,500 book value at end of 2012 = 315,000 - 157,500 = 157,500 answer: depreciation expense for 2012 = $157,500 net book value = $157,500