Gretchen, Inc., a firm that makes oversized boots, purchased a machine for its factory. The following data

Question:

Gretchen, Inc., a firm that makes oversized boots, purchased a machine for its factory. The following data relate to the machine:

Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $46,000

Delivery charges . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . $350

Installation charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $650

Date purchased. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . May 1, 2011

Estimated useful life:

In years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 years

In hours of production . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,000 hours

of operating time

Salvage value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,000

During 2011, the machine was used 1,800 hours. During 2012, the machine was used 2,900 hours.

Required:

Determine the depreciation expense and the year-end book values for the machine for the years 2011 and 2012, assuming that:

1. The straight-line method is used.

2. The double-declining-balance method is used.

3. The units-of-production method is used.

4. The sum-of-the-years’-digits method is used.

5. Interpretive Question: If you were Gretchen, which method would you use in order to report the highest profits in 2011 and 2012 combined?

Salvage Value
Salvage 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...