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Use Double-Decling-Balance Method to Depreciate a Machine

See the attached file.

1. On January 2, 2008, Sahara, Inc. purchased a silkscreen machine for its new clothing line. Sahara incurred the following costs related to the machine:

Purchase price .............................................................. \$120,000
Freight charges for delivery from manufacturer to Sahara ....... \$ 5,000
Installation costs ............................................................ \$ 8,000
Cost of testing machine to ensure proper installation ......\$ 4,000

This machine is estimated to have a ten (10) year useful life with a salvage value of \$18,000. Sahara will use the double-declining-balance (DDB) method to depreciate this machine.

Part 1: In the space below, calculate and record the depreciation expense on this bottling machine for 2009. Show and label your calculations.

Date Debit Credit
1.
2.
3.
4.

Part 2: Assume it is now August 1, 2010 and Sahara decides to exchange this machine for a newer model. This exchange will cost Sahara a total of \$40,000. The fair value of the old machine is \$70,000. In the space below, prepare the journal entry to record this exchange. Show and label your calculations.

Date Debit Credit
1.
2.
3.
4.
5.
6.
7.

Solution Preview

See the attached file.
1. On January 2, 2008, Sahara, Inc. purchased a silkscreen machine for its new clothing line. Sahara incurred the following costs related to the machine:

Purchase price .............................................................. \$120,000
Freight charges for delivery from manufacturer to Sahara ............. \$ 5,000
Installation costs ............................................................ \$ 8,000
Cost of testing machine operation to ensure proper installation ........\$ 4,000

This machine is estimated to have a ten (10) year useful life with a salvage value of \$18,000. Sahara will use the double-declining-balance (DDB) method to depreciate ...

Solution Summary

The solution examines double-declining-balance method to depreciate a machine. The calculations are shown.

\$2.19