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- Dunedin Drilling Company recently acquired a new machine at a cost of 350,000. The machine has an estimated useful life of four years or 100,000 hours, and a salvage value of 30,000. This machine will be used 30,000 hours during Year 1, 20,000 hours in Year 2, 40,000 hours in Year 3, and 10,000 hours in Year 4. Dunedin buys equipment frequently and wants to print a depreciation schedule for each assets life. Review the worksheet called DEPREC that follows these requirements. Since some assets acquired are depreciated by straight-line, others by units of production, and others by double-declining balance, DEPREC shows all three methods. You are to use this worksheet to prepare depreciation schedules for the new machine.Dunedin Drilling Company recently acquired a new machine at a cost of 350,000. The machine has an estimated useful life of four years or 100,000 hours, and a salvage value of 30,000. This machine will be used 30,000 hours during Year 1, 20,000 hours in Year 2, 40,000 hours in Year 3, and 10,000 hours in Year 4. With DEPREC5 still on the screen, click the Chart sheet tab. This chart shows the accumulated depreciation under all three depreciation methods. Identify below the depreciation method that each represents. Series 1 _____________________ Series 2 _____________________ Series 3 _____________________ When the assignment is complete, close the file without saving it again. Worksheet. The problem thus far has assumed that assets are depreciated a full year in the year acquired. Normally, depreciation begins in the month acquired. For example, an asset acquired at the beginning of April is depreciated for only nine months in the year of acquisition. Modify the DEPREC2 worksheet to include the month of acquisition as an additional item of input. To demonstrate proper handling of this factor on the depreciation schedule, modify the formulas for the first two years. Some of the formulas may not actually need to be revised. Do not modify the formulas for Years 3 through 8 and ignore the numbers shown in those years. Some will be incorrect as will be some of the totals. Preview the printout to make sure that the worksheet will print neatly on one page, and then print the worksheet. Save the completed file as DEPRECT. Hint: Insert the month in row 6 of the Data Section specifying the month by a number (e.g., April is the fourth month of the year). Redo the formulas for Years 1 and 2. For the units of production method, assume no change in the estimated hours for both years. Chart. Using the DEPREC5 file, prepare a line chart or XY chart that plots annual depreciation expense under all three depreciation methods. No Chart Data Table is needed; use the range B29 to E36 on the worksheet as a basis for preparing the chart if you prepare an XY chart. Use C29 to E36 if you prepare a line chart. Enter your name somewhere on the chart. Save the file again as DEPREC5. Print the chart.Montello Inc. purchases a delivery truck for $25,000. The truck has a salvage value of $6,000 and is expected to be driven for 125,000 miles. Montello uses the units-of-production depreciation method, and in year one the company expects the truck to be driven for 26,000 miles; in year two, 30,000 miles; and in year three, 40,000 miles. Consider how the purchase of the truck will impact Montellos depreciation expense each year and what the trucks book value will be each year after depreciation expense is recorded.
- Gimli Miners recently purchased the rights to a diamond mine. It is estimated that there are one million tons of ore within the mine. Gimli paid $23,100,000 for the rights and expects to harvest the ore over the next ten years. The following is the expected extraction for the next five years. Year 1: 50,000 tons Year 2: 90,000 tons Year 3: 100,000 tons Year 4: 110,000 tons Year 5: 130,000 tons Calculate the depletion expense for the next five years, and create the journal entry for year one.Urquhart Global purchases a building to house its administrative offices for $500,000. The best estimate of the salvage value at the time of purchase was $45,000, and it is expected to be used for forty years. Urquhart uses the straight-line depreciation method for all buildings. After ten years of recording depreciation, Urquhart determines that the building will be useful for a total of fifty years instead of forty. Calculate annual depreciation expense for the first ten years. Determine the depreciation expense for the final forty years of the assets life, and create the journal entry for year eleven.The Erley Equipment Company purchased a machine 5 years ago at a cost of $100,000. The machine had an expected life of 10 years at the time of purchase, and an expected salvage value of $10,000 at the end of the 10 years. It is being depreciated by the straight-line method toward a salvage value of $10,000, or by $9,000 per year. Anew machine can be purchased for $150,000, including installation costs. During its 5- year life, it will reduce cash operating expenses by $50,000 per year. Sales are not expected to change. At the end of its useful life, the machine is estimated to be worthless. MACRS depreciation will be used, and the machine will be depreciated over its 3-year class life rather than its 5-year economic life so the applicable depreciation rates are 33 percent, 45 percent, 15 percent, and 7 percent. The old machine can be sold today for $65,000. The firm’s tax rate is 35 percent. The appropriate discount rate is 16 percent. a. If the new machine is purchased, what is…
- The Erley Equipment Company purchased a machine 5 years ago at a cost of $100,000. The machine had an expected life of 10 years at the time of purchase, and an expected salvage value of $10,000 at the end of the 10 years. It is being depreciated by the straight-line method toward a salvage value of $10,000, or by $9,000 per year. Anew machine can be purchased for $150,000, including installation costs. During its 5- year life, it will reduce cash operating expenses by $50,000 per year. Sales are not expected to change. At the end of its useful life, the machine is estimated to be worthless. MACRS depreciation will be used, and the machine will be depreciated over its 3-year class life rather than its 5-year economic life so the applicable depreciation rates are 33 percent, 45 percent, 15 percent, and 7 percent. The old machine can be sold today for $65,000. The firm’s tax rate is 35 percent. The appropriate discount rate is 16 percent. d. What is the NPV of this project? e.…The equipment has a delivered cost of $58,000. An additional $4,000 is required to install the new equipment. The new control device falls into the 7-year class for depreciation and will be depreciated using MACRS. At the end of 8 years, the estimated Salvage Value of the new equipment is $20,000.The existing control device has been in use for approximately 10 years, and it has been fully depreciated (that is, its book value is zero for the old device). However, its current market value for the old device is estimated to be $5,000. The applicable tax rate is 34%. The new control device requires lower maintenance costs and frees personnel who would otherwise monitor the system. In addition, it reduces product wastage. In total, it is estimated that during its eight-year life, the yearly savings will amount to $20,000 if the new control device is used. Yearly sales revenue is unchanged. The illustrative firm’s cost of capital is 15%. Since the new machine is more efficient, that it will…Dell is considering replacing one of its material handling systems. The old system was purchased 7 years agofor $130,000 and was depreciated as MACRS-GDS 5-year property since the system is used in the manufactureof electronic components. It has an annual O&M cost of $48,000, a remaining operational life of 8 years, and anestimated salvage value of $6,000 at that time. A new system can be purchased for $175,000. It will be worth$50,000 in 8 years, and it will have annual O&M costs of only $17,000 per year due to new technology. If thenew system is purchased, the old system will be traded in for $55,000, even though the old system can be sold536 CHAPTER 11 / REPLACEMENT ANALYSISfor only $45,000 on the open market. Leasing a new system will cost $31,000 per year, payable at the beginningof the year, plus operating costs of $15,000 per year payable at year-end. If the new system is leased, theexisting material handling system will be sold for its market value of $45,000.Use an…
- On July 1, 2023 Jackson Company purchased factory equipment for $880,000 with an estimated $40,000 salvage value. The estimated useful life for the equipment is 12 years. During 2023, 2024, and 2025 the equipment is depreciated using the straight-line method. During 2026, $36,000 in maintenance is required on the machine to keep it running up to its standard operating specifications. Also, in 2026, $115,000 is spent to improve the equipment's efficiency and prolong its useful life. The new useful life is expected to be an additional 12 years beginning in 2026 and the revised salvage value is $25,000. Instructions . 4. Explain the accounting treatment of the $115,000 in equipment improvement that occurred in 2026. 5. What journal entry is required to record annual depreciation for 2026? hevni prisOrange Company purchased a drilling machine in 2010 for P240,000. The machine was depreciated on the straight-line method over an estimated useful life of 20 years, with no salvage value. At the beginning of 2020, when the machine had been in use for 10 years, the company paid P40,000 to overhaul the machine. As a result of this improvement, the company estimated that the useful life of the machine would be extended an additional 5 years. What would be the depreciation expense recorded for the machine in 2020? * P8,000 P10,667 P12,000 P14,667 answer not givenOn June 30, 2018, Rosetta Granite purchased a machine for $120,000. The estimated useful life of the machineis eight years and no residual value is anticipated. An important component of the machine is a specialized highspeed drill that will need to be replaced in four years. The $20,000 cost of the drill is included in the $120,000 costof the machine. Rosetta uses the straight-line depreciation method for all machinery.Required:1. Calculate depreciation for 2018 and 2019 applying the typical U.S. GAAP treatment.2. Repeat requirement 1 applying IFRS.