Reference no: EM13151660
Alladin Company purchased Machine on May 1, 2010. The following information relating to Machine was gathered at the end of May.
Price $85,000
Credit terms 2/10, n/30
Freight-in costs $ 800
Preparation and installation costs $ 3,800
Labor costs during regular production operations $10,500
It was expected that the machine could be used for 10 years, after which the salvage value would be zero.
Alladin intends to use the machine for only 8 years, however, after which it expects to be able to sell it for $1,500. The invoice for Machine was paid May 5, 2010. Alladin uses the calendar year as the basis for the preparation of financial statements.
Instructions:
(a) Compute the depreciation expense for the years indicated using the following methods. (Round to the nearest dollar.)
(1) Straight-line method for 2010.
(2) Sum-of-the-years'-digits method for 2011.
(3) Double-declining-balance method for 2010.
(b) Suppose Kate Crow, the president of Alladin, tells you that because the company is a new organization, she expects it will be several years before production and sales reach optimum levels. She asks you to recommend a depreciation method that will allocate less of the company's depreciation expense to the early years and more to later years of the assets' lives. What method would you recommend?
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