A machine was purchased at a cost of $9,600,000 on June 30, 2020. The machine’s estimated salvage value is $1,600,000 and its expected life is 4 years. The company reports on a calendar year basis. Instructions: Answer the following independent questions Record the depreciation expense for 2021, assuming the company used the double declining method in both 2020 and 2021 Determine the balance of accumulated depreciation on 12/31/2021 assuming the company used the sum-of- the-years digits method in both 2020 and 2021. At what amount would the company report the machine on its 2020 balance sheet, if it chose to use the straight-line method?
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
A machine was purchased at a cost of $9,600,000 on June 30, 2020. The machine’s estimated salvage value is $1,600,000 and its expected life is 4 years. The company reports on a calendar year basis.
Instructions: Answer the following independent questions
- Record the
depreciation expense for 2021, assuming the company used the double declining method in both 2020 and 2021 - Determine the balance of
accumulated depreciation on 12/31/2021 assuming the company used the sum-of- the-years digits method in both 2020 and 2021. - At what amount would the company report the machine on its 2020 balance sheet, if it chose to use the straight-line method?
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