Exercise 6-13 Depreciation calculation methods LO 3 Millco, Inc., acquired a mac
ID: 2530479 • Letter: E
Question
Exercise 6-13 Depreciation calculation methods LO 3 Millco, Inc., acquired a machine that cost $576,000 early in 2013. The machine is expected to last for eight years, and its estimated salvage value at the end of its life is $77,000. 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. b. Using declining-balance depreciation at twice the straight-line rate, calculate the depreciation expense for the third year of the machine's life. c. What will be the net book value of the machine at the end of its eight year of use before it is disposed of, under each depreciation method?
Explanation / Answer
a. Using straight-line depreciation
Depreciation = (Cost of the assets – Salvage Value ) / Usefull Life
Depreciation expense to be recognized in the first year
= ($5,76,000 - $77,000) / 8 Years
= $62,375
Accumulated depreciation after the fifth year
= $62,375 x 5 Years
= $3,11,875
(b)Using declining-balance depreciation
Depreciation expense for the third year = $81,000
Depreciation expense for the First year
= $576000 x 2 x 1/8 = $1,44,000
Depreciation expense for the second year
= ($576000 – 144000) x 2 x 1/8
= $1,08,000
Depreciation expense for the third year
= ($576000 - $144000 - $108000) x 2 x 1/8
= $81,000
Net book value of the machine at the end of its eight year
Net book value of the machine at the end of its eight year will be the salvage value, Which is equal to $77,000