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Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
ISBN: 9781305585447

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BuyFindarrow_forward

Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
ISBN: 9781305585447
Textbook Problem

Oxford Manufacturing. Inc., purchased new equipment totaling $648,000. Shipping charges were $2,200, and installation amounted to $1,800. The equipment is expected to last 4 years and have a residual value of $33,000. If the company elects to use the straight-line method of depreciation, prepare a depreciation schedule for these assets.

Oxford Manufacturing, Inc. Straight-Line Depreciation Schedule Manufacturing Equipment

End of Year AnnualDepreciation AccumulatedDepreciation BookValue
(new)
1
2
3
4

To determine

To calculate: The annual depreciation, accumulated depreciation and book value of Oxford Manufacturing’s equipment when the equipment purchased cost is $648,000, shipping charges are $2,200 and installation amounted to $1,800. And also prepare the depreciation schedule of these assets by the use of straight-line method.

Explanation

Given Information:

The cost of the new equipment purchased by Oxford Manufacturing is $648,000

The shipping and the installation charges are $2,200 and $1,800, respectively.

The residual value of equipment is $33,000 and

Expected life is 4 years.

Formula used:

The steps to prepare depreciation schedule by straight line method are as follows:

Step 1: Calculate the total cost.

Step 2: Calculate the total amount of depreciation by subtracting salvage value from the total cost.

Total depreciation = Total cost  Salvage value

Step 3: Divide the total amount of depreciation by the estimated useful life and calculate the annual depreciation

Annual depreciation = Total depreciationEstimated useful life (years)

Step 4: Prepare the depreciation schedule in form of chart.

Book value,

Book value = Original cost  Accumulated depreciation

Calculation:

Consider the provided data,

Cost of the new equipment is $648,000

The shipping and the installation charges are $2,200 and $1,800, respectively.

The total cost of the equipment is:

Total cost=Cost of equipment+Shipping cost+Installation cost

Now, by the use of the above formula, the total cost of the equipment is,

Total cost=$648,000+$2,200+$1,800=$652,000

Now, the residual value of equipment is $33,000 and expected to last 4 years.

The total amount of depreciation is,

Total amount of depreciation=Total costSalvage cost

Now, by the use of the above formula, the total amount of depreciation is,

Total amount of depreciation=$652,000$33,000=$619,000

The total amount of annual depreciation is,

Total amount of annual depreciation=Total depreciationestimated useful life

Now, by the use of above formula, the total amount of annual depreciation is,

Total amount of annual depreciation=$619,0004=$154,750

Book value in the first year will be,

Book value = Original cost  Accumulated depreciation=$652,000$154,750=$497,250

Now, as the method used is straight line depreciation therefore the annual depreciation is same every year

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