Question

Workman Company purchased a machine on January 2, 2017, for \(800,000. The machine has an estimated useful life of 5 years and a salvage value of \)100,000. Depreciation was computed by the 150% declining-balance method. What is the amount of accumulated depreciation at the end of December 31, 2018?

Short answer

Answer

Accumulated depreciation = $408,000

Step-by-step solution

Meaning of Accumulated Depreciation

Depreciation expense is an expense that is incurred on a tangible asset due to obsolescence or the passage of time on that asset. A company has a different option for determining depreciation, but straight-line depreciation is the simplest one.

Determining the amount of accumulated depreciation 

Calculating depreciation rate

$\begin{array}{rcl}Depreciationrate& =& \frac{1}{Usefullife}\times Depreciationdecliningmethod\\ & =& \frac{1}{5}\times 150\%\\ & =& 30\%\end{array}$

Calculating depreciation for 2017

$\begin{array}{rcl}Depreciation& =& Costofmachine\times Depreciationrate\\ & =& \$800,000\times 30\%\\ & =& \$240,000\end{array}$

Calculating depreciation for 2018

$\begin{array}{rcl}Depreciation& =& \left(Costofmachine-Depreciationfor2017\right)\times Depreciationrate\\ & =& \left(\$800,000-\$240,000\right)\times 30\%\\ & =& \$560,000\times 30\%\\ & =& \$168,000\end{array}$

Calculating Accumulated depreciation for 2018

$\begin{array}{rcl}Accumulateddepreciation& =& Depreciationfor2017+Depreciationfor2018\\ & =& \$240,000+\$168,000\\ & =& \$408,000\end{array}$