Question

# DEPRECIATION COMPUTATIONS ON JULY 1, 2015 DOLBY CORP PURCHASED SOME NEW EQUIPMENT TO BE USED IN...

DEPRECIATION COMPUTATIONS

ON JULY 1, 2015 DOLBY CORP PURCHASED SOME NEW EQUIPMENT TO BE USED IN THEIR RECORDING STUDIO. THE EQUIPMENT COST \$70,000 AND IT IS EXPECTED TO HAVE A SALVAGE VALUE OF \$8,000 AFTER ITS USEFUL LIFE OF 6 YEARS. IT IS ESTIMATED THAT THE MACHINE WILL BE USED FOR 32,000 HOURS OF RECORDING OVER THE 6 YEARS. DOLBY USED THE EQUIPMENT FOR 8,000 HOURS AND 9,000 HOURS FOR THE YEARS 2015 AND 2016 RESPECTIVELY. MACRS (TAX) DEPRECIATION SPECIFIES A FIVE-YEAR RECOVERY PERIOD FOR THIS ASSET. THE IRS TABLE SHOWS THE FOLLOWING PERCENTAGES FOR DEPRECIATION: YEAR PERCENTAGE FIRST 20% SECOND 32% THIRD 19.20% FOURTH 11.52% FIFTH 11.52% SIXTH 5.76% CALCULATE THE DEPRECIATION EXPENSE FOR 2015 AND FOR 2016 USING (a) the straight-line method, (b) the DDB method, (3) the units of activity method, and (4) the MACRS method.

 a) Straight-line Method Annual Depreciation =( \$70,000 - \$8,000)/6 \$10,333.33 Depreciation for 2015 = \$10,333.33 x 6 months /12 months \$5,166.67 Depreciation for 2016 \$10,333.33 b)DDB Method Rate of Depreciation = 1/ useful life x 100% = 1/6 x 100% 16.67% DDB rate of Depreciation = 16.67% x 2 33.33% Depreciation for 2015 = \$70,000 x 33.33% x 6/12 months \$11,666.67 Depreciation for 2016 = (\$70,000 - 11,666.67) x 33.33% x 6/12 months \$19,444.44 c)units of activity method Depreciation per unit = (\$70,000 - \$8,000)/32000 hours \$1.94 per hour Depreciation for 2015 = \$1.94 x 8000 hours \$15,500.00 Depreciation for 2016 = \$1.94 x 9000 hours \$17,437.50 4) MACRS Depreciation for 2015 = \$70000 x 20% \$14,000.00 Depreciation for 2015 = \$70000 x 32% \$22,400.00

#### Earn Coins

Coins can be redeemed for fabulous gifts.