Ahigh-precision programmable router for shaping fur- niture components is purchased by henredon for $190,000. it is expected to last 12 years and have a salvage value of $5,000. calculate the depreciation deduction and book value for each year. a. use straight-line depreciation. b. use declining balance depreciation using a rate that ensures the book value equals the salvage .

a) Annual depreciation = $15,416.67

b) Depreciation rate = 0.2615

Explanation:

Data provided in the question:

Cost of router = $190,000

Useful life = 12 years

Salvage value = $5,000

Now,

a) Using straight-line depreciation

Annual depreciation =

=

= $15,416.67

Hence,

Year           Depreciation                        Book value

  1                 $15,416.67                  $190,000 - $15,416.67 = $174,583.33

  2                 $15,416.67                 $174,583.33 - $15,416.67 = $159166.66

  3                 $15,416.67                  $159166.66 - $15,416.67 = $143749.99

  4                 $15,416.67             $143749.99 - $15,416.67 = $128333.32

  5                 $15,416.67                  $128333.32 - $15,416.67 = $112916.65

  6                 $15,416.67                  $112916.65 - $15,416.67 = $97499.98

  7                 $15,416.67                  $97499.98 - $15,416.67 = $82083.31

  8                 $15,416.67                  $82083.31 - $15,416.67 = $66666.64

  9                 $15,416.67                  $66666.64 - $15,416.67 = $51249.97

  10                 $15,416.67                  $51249.97 - $15,416.67 = $35833.3

  11                 $15,416.67                  $35833.3 - $15,416.67 = $20416.63

  12                 $15,416.67                  $20416.63 - $15,416.67 = $4999.96

b) using declining balance depreciation

Depreciation rate =

here, n = useful life

thus,

Depreciation rate =

= 0.2615

Therefore,

Year           Depreciation                        Book value

  1                0.2615 × $190,000      $190,000 - $49685 = $140315

  2                0.2615 × $140315      $140315 - $36692.3725 = $103622.62

  3              0.2615 × $103622.6    $103622.62 - $27097.30 = $76525.32

  4                0.2615 × $76525.32    $76525.32 - $20011.37 = $56513.95

  5                0.2615 × $56513.95    $56513.95 - $14778.39 = $41735.56

  6                0.2615 × $41735.56    $41735.56 - $10913.84 = $30821.72

  7                0.2615 × $30821.72    $30821.72 - $8059.87 = $22761.85

  8                0.2615 × $22761.85    $22761.85 - $5952.22 = $16809.63

  9                0.2615 × $16809.63    $16809.63 - $4396.22 = $12413.41

  10                0.2615 × $12413.41     $12413.41 - $3246.10 = $9167.31

  11                0.2615 × $9167.31      $9167.31 - $2397.25 = $6770.06

  12                0.2615 × $6770.06    $6770.06 - $1770.37 = $4999.69

answer; risk transference;