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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

Vanguard Manufacturing, Inc., purchased production-line machinery for $445,000. It is expected to last for 6 years and have a trade-in value of $25,000. Using the sum-of-the-years’ digits method, prepare a depreciation schedule for Vanguard.

Vanguard Manufacturing, Inc. SYD Depreciation Schedule Production-Line Machinery

End of Total Depreciation Annual Accumulated Book
Year Depreciation Rate Fraction Depreciation Depreciation Value
1 (new)
2
3
4
5
6

To determine

To calculate: The depreciation schedule for Vanguard Manufacturing when the total cost of production-line machinery is $445,000.

Explanation

Given Information:

The total cost of production-line machinery is $445,000. The residual value of machinery is $25,000 and expected to last 6 years.

Formula used:

The steps to prepare depreciation schedule by the sum-of-the-years digits method are as follows:

Step 1: Calculate the total amount of depreciation by subtracting salvage value from the total cost.

The total amount of depreciation is:

Total amount of depreciation=Total cost-Salvage cost

Step 2: Calculate the SYD depreciation rate fraction by dividing each year from years of useful life remaining.

The SYD depreciation rate fraction is:

The SYD depreciation rate fraction=Years of useful life remainingn(n+1)2

Step 3: Calculate the annual depreciation by multiplying total amount of depreciation by the depreciation rate fraction.

The total amount of annual depreciation is:

Total amount of annual depreciation=Total depreciation×Depreciation rate fraction

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

Calculation:

Consider the total cost of production-line machinery is $445,000 and the residual value of machinery is $25,000.

The total amount of depreciation is:

Total amount of depreciation=Total cost-Salvage cost

Now, using the above formula, the total amount of depreciation is:

Total amount of depreciation=445,00025,000=$420,000

The SYD depreciation rate fraction is:

The SYD depreciation rate fraction=Years of useful life remainingn(n+1)2

Now, using the above formula, the SYD depreciation rate fraction is:

The SYD depreciation rate fraction=66(6+1)2=66(7)2=63(7)=621

The total amount of annual depreciation is:

Total amount of annual depreciation=Total depreciation×Depreciation rate fraction

Now, using the above formula, the total amount of annual depreciation for 1st year is:

Total amount of annual depreciation(year 1)=420,000×621=2,520,00021=$120,000

The accumulated depreciation for 1st year is the same as annual depreciation for 1st year:

Accumulated depreciation=$120,000

The ending book value is the subtraction of accumulated depreciation of that year from the original cost

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