A use. (} point for each correct answer) (30 points) Solve the following depreciation problems. (points for correct answers as marked) 1. A pharmaceutical company has testing machines on which it calculates depreciation by the straight-line method. The following table shows cost, estimated life, years used, and scrap value for each machine. Find the annual depreciation, total depreciation, and book value after the indicated number of years of Total Estimated Years. Serap_—— Annual Depreciation Life (years) Used __ Value _Depreciation _to Date Book Value a. 10 8 ‘$3,000 = ». 100,000 6 3 $10,000 . 168,000 8 5 812,000 a. 69,200 5 L none 2. Speedy Delivery Service bought two new trucks. The following table shows the cost, scrap value, estimated life in miles), and mileage for the first year. Using the straight-line method based on mileage driven, com- pute the first years depreciation and the book value at the end of the first year for each truck. (2 points for ‘each correct depreciation amount and 1 point for each correct book value) ‘a. Whats the annual depreciation? 'b, Whatis the book valle ofthe equipment at the end of 14 years? Original Serap Estimated Life Mileage for Depreciation Book Value Cost Value (niles) First Year for First Vear after 1 Year a. $49,500 81,500 150,000 21,700 b. $23,000 S600 80,000 15,300 3. Dole Fruit Company's equipment cost $107,000. Its useful life is estimated to be 15 years, and its scrap value is $2,000. The company uses straight-line depreciation. (2 points for each correct answer)‘A. Carlucci and Sons purchased a machine for $13,645 at the beginning ofthe year. Additional costs included $250 freight and $175 for installation. It was estimated that the machine could be operated for 30,000 hours, after which its resale value would be $570. Determine the straight-line depreciation based on hours of operation and the book value atthe end of each ofthe first 7 years (1 point for each correct answer) Hours of Operation Book Value 2,300 313,035.00 2,750 2 $11,797.50. 2,500 0,672.50 2,480 $9,556.50 2,800 38,296.50 3,100 31,395.00 2,950 lustrative solution: Year |: $13,645 + $250 + $175 = $14,070 full cost $14,070 — $570 = $13,500 total depreciation $313,500 + 30,000 = $0.45 depreciation per hour 2,300 X $0.45 = $1,035 depreciation first year $14,070 — $1,035 = $13,035 book value end of frst year 2,750 X $0.45 = $1,237.50 depreciation second year $13,035 — $1,237.50 = $11,797.50 book value end of second year Score for A (30) (56 points) Solve the following depreciation problems. Round dollar amounts to two decimal places. (points for correct answers as marked) '5. Anderson ‘Tool and Die Company owns a group of machines, the details of which are shown in the following table. Anderson uses the double-declining-balance method of calculating depreciation. ‘Compute the depreciation forthe specific years indicated. (2 points for each correct answer) Original Estimated Serap Cost Life (years) ___Value iat Depreciation a. $32,000 16 31,200 $3,062.50 b. $25,800 5 33,000 2 $343.68 e. $8,000 4 s 300 1,000.00 4. $15,000 10 _ 28.80 e. $12,600 8 1,200 28.9 f. $95,000 20 Tlhustrative solutions: &, 100% + 16 years = 6.25% x 2= 12.5% annual rate 2 = 40% anmual rate $32,000 x 12.5% = $4,000 deprecation rst year 2 $10,320 depreciation first year $32,000 ~ $4,000 = $28,000 new balan = $15,480 new bs 28,000 X 12.5% = $3,500 der . $6,192 depreciation second year $28,000 5.48 2 = $9,288 new balance 715.20 depreciation third year $3,715.20 = $5,572.80 ne balance depreciation fourth year 43,68 new balance 8 depreciation filth ye book value below serap value Business ApplicationsMachinery purchased from Telecom, Inc. by Blazedales cost $69,800. Depreciation was determined by the double-declining-balance method for an estimated life of 16 years. Compute the following: a. Book value after 4 years (8 points) $40.915.47 100% + 16 = 625%; 6.25% X 2 = 12.5% annual rate $69,800 X 0.125 = $8, 5 depreciation frst year $69,800 ~ 33,7 new balance $61,075 X 0.12 $7,634.38 depreciation second year $61,075.00 ~ $7,634.38 = $53,440.62 new balance $53,440.82 0.125 = $6,680.08 depreciation third year $53,440.62 ~ $6,680.08, $46,760.54 X 0.125 = $46,760.54 — $5,845.07 “otal depreciation ater 6 years (4 points): $38, $46,760.54 new balance 845.07 depreciation fourth year $40,915.47 book value after 4 years 09 $40,915.47 X 0.125 = $5,114.43 depreciation fith year $40 915.47 ~ $5,114.43 = $35,801.04 new balance $35,801.04 X 0.125 801.04 ~ $4475. 91 new balance $69,800 ~ $31,325.91 = $38,474.09 total depreciation afer 6 years B= Dugan Manufacturing Company bought an engine for $36,000. The engine had an estimated life £20 years and a scrap value of $5,250. After 6 years, the company went out of business and sold the engine $8,200. Ifthe machine was depreciated by the double-declining- balance method, how much did the =xpany lose on the sae (the difference between the book value and the selling price)? B® points) $1,237.18 $4,475.13 depreciation sixth year 31,32 + 10 = 10% 1056 x 2 = 20% annual rate 00 X 0.2 = $7,200 depreciation first year B00 ~ $7,200 = $28,800 new balance Bo0 x 02 = $5760 depreciation second year fo 3570-300 ney ne Boo 02 = $4608 deprecation third year bo — $4600 = B52 « 02 = $3,68540 deprecation fourth year 52 — 3.68640 = $14,745.60 new balance 5002 = $290.12 deprecation th yer B35.60 — $2,949.12 = $11,796.48 new balance | Biss x 02 = $2,359.30 depreciation sch year Bec.is — 52.350. 18,432 new balance $9,437.18 book value at end of sixth year | ~ $8,200 = $1,237.18 loss - | Score for B (56) Chapter 18 Depreciation [365© _ (14points) Solve the following depreciation problems. (1 point for each correct answer) 18 The Western Salvage Service bought three trucks. The following table shows the cos, estimated life, and resale estimate for each truck. Use the sum-of-the-years-digits method to find each truck’ depreciation for the first and second years of use. Round answers to the nearest dollar. Depreciation for Depreciation for Original Cost___Estimated Life __Resale Fstimate_First Year Second Year a. $36,000 oye $6,000 $571 S18 », $50,000 sye $2,000 16,000 $12,800 «. $60,000 Tye 12,000 12,000 $10,286 lustrative solution: +06 ‘$36,000 ~ $6,000 = $30,000 total depreciation a orl +2+3+44+5+6=21 iar £x590900= 58571 Send yar 80000 = 57.18 2 9. Use the information in problem 8b to compute the amount of depreciation for years 3-5. Year 3: $9,600 Year 4 $6400 Year 5: $3,200 sc = 80 var 2 x 800 = 80 verssd x snano = $820 +10, Use the information in problem 8 to compute the amount of depreciation for each vehicle forthe First 2 years using the straight-line method. Round to the nearest dolla. a. $10,000 b, $19,200 ¢. $1374 a. ($36,000 ~ $6,000) + 6 = $5,000; $5,000 X 2 = $10,000 b, ($50,000 ~ $2,000) + 5 = $9,600 x 2 = $19,200 «, ($60,000 — $12,000) + 7 = $6,857; $6,857 X 2 = $13,714 41, Which method of depreciation would give the smaller amount of write-off, and how much less would it be for the three vehicles for the first 2 years? straight-line $25,886 ‘SYD: (68,571 + $7,143) + (816,000 + $12,800) + (12,000 + $10,286) = $66:800 SL: $10,000 + $19,200 + $13,714 = $42,914 Difference: $6,800 ~ $42,914 = $23,886 Seore for C (14) [366] pares Business Applications