Question 1.

Delta Company acquired new equipment with an estimated useful life of 5 years. Cost of the equipment
was $50,000 and the residual value salvage value was estimated to be $5,000. Compute the annual
depreciation expense for each of the first 2 years under each of the following methods of depreciation.
(Compute on full years’ depreciation in each year).

A Straight Line Method

B Sum of the years’ digits Method
C Double Declining Method

Question 2

New machinery was purchased by HydroTech at a list price of $40,000; the credit terms were 2/10, n/30.
Payment of the invoice was made within the discount period. The payment included 6% sales tax on the
net price. Hydro Tech also paid transportation charges of $610 on the new machinery as well as $760 for
installing the machinery in the appropriate locations. During the unloading and installation work some of
the machines fell from a forklift and were damaged. Repair of the damaged parts cost $ 2,170. After the
machinery had been in use for 3 months, it was thoroughly cleaned and lubricated at a cost of $260.
Prepare a list of the items which should be capitalized by a debit to the Machinery account and state the
total cost of the new machinery.

Question 3

Machinery with an estimated useful life of 5 years was acquired by VPI Industries at a cost of $55,000 at
the beginning of the year. The estimated residual value of the machinery is $6,000. Compute the annual
depreciation this machinery for each of the 5 years using the double-declining balance method. Compute
one full year’s depreciation in each year. Limit the depreciation recognized in the fifth year to an amount
that will cause the book value of the machinery to equal the estimated $6,000 residual value at year-end.

Question 4

Ogilvie Construction traded in a used crane on a similar new one. The original cost of the old crane was
$60,000 and the accumulated depreciation was $48,000. The new crane carried a list price of $75,000 and
the trade in allowance was $18,000. What amount of cash must Ogilvie pay? Compute the indicated gain
or loss on disposal of the old crane.

Question 5

Compute Depreciation for first 3 Years.

Estimated
Useful Residual
Machine Cost Method of Depreciation
Life in Value
Years
A $308,000 6 10% Straight Line
B $160,000 8 None Double Declining Balance
C $250,000 6 $40,000.00 Sum of the years' digits
D $204,000 10 $25,000.00 Double Declining Balance