Problem
Jordash Company purchased Machine #573 on May 1, 2015. The following information relating to Machine #573 was gathered at the end of May:
Price $36,750
Credit terms 2/10, n/30
Freight-in costs $ 485
Preparation and installation costs $ 1,900
Labor costs during regular production operations $ 5,250
It was expected that the machine could be used for 10 years, after which the salvage value would be zero. Jordash intends to use the machine for only 8 years, however, after which it expects to be able to sell it for $600. The invoice for Machine #573 was paid May 5, 2015. Jordash uses the calendar year as the basis for the preparation of financial statements.
a. Compute the depreciation expense for the years indicated using the following methods. (Round to the nearest dollar.)
1. Straight-line method for 2015.
2. Sum-of-the-years'-digits method for 2016.
3. Double-declining balance method for 2015.
b. Suppose Jodi Scott, the president of Jordash, tells you that because the company is a new organization, she expects it will be several years before production and sales reach optimum levels. She asks you to recommend a depreciation method that will allocate less of the company's depreciation expense to the early years and more to later years of the assets' lives. What method would you recommend?