Reference no: EM132597460

One of the types of adjusting entries Annabelle and Sarah have to record at For Rover's Sake is depreciation. Depreciation is the value something loses over time.

• As an example, think about your car. You might purchase it for $25,000 and then in 10 years, when you go to sell it, you might only get $3,000.
• Mileage, wear and tear or damage, and exposure to the elements can all affect depreciation of a car.
• But there are more assets than cars that depreciate. Computers depreciate. Cell phones and tablets depreciate. Any equipment that's worth less used is going to depreciate.
• In accounting, depreciation of an asset is both planned and gradual. Say, for example, For Rover's Sake buys all new computers. They spend $40,000 (including sales tax) and expect to use those computers for 5 years.
• Annabelle asks Sarah to calculate the annual depreciation expense. Sarah takes the value of the asset when new ($40,000) and divides it by the time (in this case, 5 years).
• The planned and gradual depreciation for For Rover's Sake's new computers will be $8,000 per year. Effectively, it will be as though the company went out and bought $8,000 worth of computers each year for 5 years.
• This represents just one way of calculating depreciation, called the straight-line method (Scott, 2018).
• Now it's your turn to help Sarah and Annabelle out. For Rover's Sake just purchased five industrial sewing machines, which it uses to make its patented automobile safety harnesses for dogs.
• Each sewing machine costs $1,495.00 plus tax at a 6.0% rate. For Rover's Sake expects to use these machines for 9 years.

Question 1: Calculate the planned and gradual annual depreciation for this purchase. Round to the nearest penny.

Question 2: Describe your calculation process and whether the depreciation would be used in forecasting.