On January 1, Stoker Company purchased an $80,000 machine. The estimated life of the machine was eight

Question:

On January 1, Stoker Company purchased an $80,000 machine. The estimated life of the machine was eight years, and the estimated salvage value was $6,000. The machine had an estimated useful life in productive output of 110,000 units. Actual output for the first two years was: year 1, 15,000 units; year 2, 13,000 units.

Required:

1. Compute the amount of depreciation expense for the first year, using each of the following methods:

a. Straight-line

b. Units-of-production

c. Sum-of-the-years’-digits

d. Double-declining-balance

2. What was the book value of the machine at the end of the first year, assuming that straight-line depreciation was used?

3. If the machine is sold at the end of the fifth year for $28,500, how much should the company report as a gain or loss (assuming straight-line depreciation)?

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...