Home > categories > Machinery & Equipment > Other Construction Machinery > On April 13, 2006, Foley Co. purchased machinery for $120,000. Salvage value was estimated to be $5,000?
Question:

On April 13, 2006, Foley Co. purchased machinery for $120,000. Salvage value was estimated to be $5,000?

The machinery will be depreciated over ten years using the double-declining balance method. If depreciation is computed on the basis of the nearest full month, Foley should record depreciation expense for 2007 on this machinery of $20,800. $20,400. $20,550. $20,933.

Answer:

Assume the machine useful life is 10 years Double-declining-balance method Rate: Double of straight-line rate 100%/10=10% x 2 =20% Depreciation Expense: Year 2006: $120,000 x 20% =$24,000 (whole year) $24,000/12=$2,000 (every month) There are only 8 months (May-Dec.) $2,000 x 8 = $16,000 Year 2007: ($120,000-16,000) x 20% = $20,800 Unlike the other depreciation methods, salvage value is ignored in determining the amount to which the declining balance rate is applied. Depreciationn stops when the asset's book value equals expected salvage value.

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