Straight-Line, Declining-Balance, Sum-Of-The-Years'-Digits, and MACRS MethodsA machine is purchased January 1 at a cost of $59,000. It is expected to serve for eight years and have a salvage value of $3,000.Required:1. Prepare a schedule showing depreciation for each year and the book value at the end of each year using the following methodsa. Straight-line c. Sum-of-the-years'-digits (round to two decimal places)Sum-Of-The-Years'-Digits MethodYear Annual Depreciation Ending Book Value1.34782. Assuming a seven-year class of property, compute MACRS depreciation expense for each year of the asset's life. If required, round your DepreciationRates and Depreciation Expense answers to two decimal places. (Use Figure 18-3).MACRS methodMACRS DepreciationDepreciationYear Original CostRates 7-YearExpenseClass of Property1%0%%4%%6%7%8%Total2.3. Straight-Line MethodYear Annual Depreciation Ending Book Value2.348b. Double-declining-balance (round to two decimal places)Double-Declining-Balance MethodYear Annual Depreciation Ending Book Value12378.4.

Name: Straight-Line, Declining-Balance, Sum-Of-The-Years'-Digits, and MACRS
Uploaded: 2024-03-05T11:50:36.000Z
Channel: Bartleby
Description: Straight-Line, Declining-Balance, Sum-Of-The-Years'-Digits, and MACRS MethodsA machine is purchased January 1 at a cost of $59,000. It is expected to serve for eight years and have a salvage value of $3,000.Required:1. Prepare a schedule showing depr

Depreciation: Depreciation is a method that reallocates the cost of tangible assets over their useful life. In accountancy, depreciation refers to how two aspects of the business are affected by one single transaction. 1. Depreciation decreases the value of assets. 2. Depreciation allocates the cost of an asset over a period of its useful life and charges is as an expense. Methods of Depreciation Expense: Methods for calculating the depreciation may vary but treatment for recording depreciation expense would be same for all methods: a. Straight-Line Method b. Double-Declining Balance Method c. Sum of the years' digit method Let us discuss each of the methods in the following steps for the calculation of depreciation and calculating the book value for each year. Straight-Line Method: It charges depreciation expenses evenly throughout the life of an asset. This method is appropriate where economic benefits from the assets are expected to be realized evenly over its useful life. Due to its simplicity, this method is commonly used. This method provides an annual depreciation the same each year. Formula: Annual Depreciation = (Cost of Asset - Residual Value)/Useful life in years Calculation: Cost of Machine = $59,000 Residual Value = $3,000 Useful Life = 8 years As the depreciation amount is the same for each year under the Straight-Line Method is as under: Depreciation Amount = ($59,000 - $3,000)/8 years = $7,000 Therefore, the depreciation expense amount for all the years is $7,000. The depreciation schedule under the Straight Line Method is as under: Double-Declining Balance Method: This is a method of accelerated depreciation. Accelerated depreciation is a method where more depreciation is charged during the beginning of the life of an asset and less is charged during the later life of an asset. This method is also known as the 200% declining balance method. Although depreciation will be faster, total depreciation over the life of the asset will not be greater than the total depreciation using the straight-line method. In reality, total depreciation over the useful life of an asset will never be more than its depreciable value. Formula: Double-Declining Balance Depreciation Rate = Straight-Line Depreciation Rate*2 Straight-Line Depreciation Rate = 100/Useful Life Calculation: Straight Line Depreciation Rate = 100/8 years = 12.5% Double Declining Depreciation Rate = (Straight Line Depreciation Rate)*2 = 12.5%*2 = 25% Depreciation Amount is calculated as under: Depreciation Expense = (Cost Value - Depreciation Expense for previous year) * Depreciation Rate Calculation is as under: The depreciation schedule under the double-declining balance method is as under: Sum of the year's digits method: It is one of the accelerated depreciation methods. It is based on assumption that assets are generally more productive when they are new and their productivity decreases as they become old. Formula: Annual Depreciation = Depreciable Base*Remaining Useful Life in Years/Sum of the year's digit method Depreciable Base = Cost Value - Residual Value Calculation: Depreciable Base = Cost Value - Residual Value = $59,000 - $3,000 = $56,000 Sum of the years' digit = 1 + 2 + 3 + 4 + 5 + 6 + 7 + 8 = 36 The depreciation expense for each year is calculated as under: The depreciation schedule under Sums of year's Digits method is as under: Note: Please resubmit the question for Subquestion 2 for calculation of depreciation under MACRS. Conclusion: To conclude, we have calculated the depreciation expense and book value of each year for the machine purchased.