Beckham Company purchased Machine #201 on May 1, 2008. The following information relating to Machine #201 was
Question:
Beckham Company purchased Machine #201 on May 1, 2008. The following information relating to Machine #201 was gathered at the end of May.
Price ..................................... $73,500
Credit terms .............. 2/10, n/30
Freight-in costs .............. $ 970
Preparation and installation costs ....... $ 3,800
Labor costs during regular production operations $10,500
It was expected that the machine could be used for 10 years, after which the salvage value would be zero. Beckham intends to use the machine for only 8 years, however, after which it expects to be able to sell it for $1,200. The invoice for Machine #201 was paid May 5, 2008. Beckham uses the calendar year as the basis for the preparation of financial statements.
Instructions
(a) Compute the depreciation expense for the years indicated using the following methods. (Round to the nearest dollar.)
(1) Straight-line method for 2008.
(2) Sum-of-the-years’-digits method for 2009.
(3) Double-declining balance method for 2008.
(b) Suppose Jen David, the president of Beckham, tells you that because the company is a new organization, she expects it will be several years before production and sales reach optimum levels. She asks you to recommend a depreciation method that will allocate less of the company’s depreciation expense to the early years and more to later years of the assets’ lives. What method would you recommend?
Salvage ValueSalvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...
Step by Step Answer:
Intermediate Accounting principles and analysis
ISBN: 978-0471737933
2nd Edition
Authors: Terry d. Warfield, jerry j. weygandt, Donald e. kieso