Tamarisk Company purchased Machine #201 on May 1, 2020. The following information relating to Machine #201 was gathered at the end of May. Price Credit terms Freight-in Preparation and installation costs Labor costs during regular production operations $112,200 2/10,n/30 $1,056 $5,016 $13,860 It is expected that the machine could be used for 10 years, after which the salvage value would be zero. Tamarisk intends to use the machine for only 8 years, however, after which it expects to be able to sell it for $1,980. The invoice for Machine #201 was paid May 5 2020. Tamarisk uses the calendar year as the basis for the preparation of financial statements.
Tamarisk Company purchased Machine #201 on May 1, 2020. The following information relating to Machine #201 was gathered at the end of May. Price Credit terms Freight-in Preparation and installation costs Labor costs during regular production operations $112,200 2/10,n/30 $1,056 $5,016 $13,860 It is expected that the machine could be used for 10 years, after which the salvage value would be zero. Tamarisk intends to use the machine for only 8 years, however, after which it expects to be able to sell it for $1,980. The invoice for Machine #201 was paid May 5 2020. Tamarisk uses the calendar year as the basis for the preparation of financial statements.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
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Tamarisk Company purchased Machine #201 on May 1, 2020. The following information relating to Machine #201 was gathered at
the end of May.
Price
Credit terms
Freight-in
Preparation and installation costs
Labor costs during regular production operations
$112,200
2/10,n/30
$1,056
$5,016
$13,860
It is expected that the machine could be used for 10 years, after which the salvage value would be zero. Tamarisk intends to use the
machine for only 8 years, however, after which it expects to be able to sell it for $1,980. The invoice for Machine #201 was paid May 5,
2020. Tamarisk uses the calendar year as the basis for the preparation of financial statements.
Transcribed Image Text:(a)
Compute the depreciation expense for the years indicated using the following methods.
(1) Straight-line method for 2020
(2)
(3)
Sum-of-the-years-digits method for 2021
Double-declining-balance method for 2020
s
Depreciation Expense
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Step 1: Define Depreciation
VIEWStep 2: Computation of Total Cost of Machine is as follows:
VIEWStep 3: Computation of depreciation expense for 2020 using straight line Method is as follows:
VIEWStep 4: Computation of depreciation expense for 2021 using sum of years digit method is as follows:
VIEWStep 5: Computation of depreciation expense for 2020 using double declining balance method is as follows:
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