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Alladin Company Depreciation Partial Period SL, SYD and DDB

Alladin Company purchased Machine #201 on May 1, 2010. The following information relating to Machine #201 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 abke to sell it for $1,500. The invoice for Machine #201 was paid May 5, 2010. Alladin uses the calander year as the basis for the preparation of financial statements.

(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 recommend?

Pleas use Excel to answer this question.

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Your tutorial is attached in Excel and shows you the formulas and the ...

Solution Summary

Your tutorial is attached in Excel and shows you the formulas and the method for pro-rating partial year depreciation for straight line, sum-of-the-years method and double declining method. Your response includes a recommendation for having low depreciation in the early year and more in the later years.

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