15.501/516 Problem Set #5 Accounting for Depreciation, Delta-Pan Am Airlines case write-up 1. Depreciation Calculation Dove Company acquired a new machine on 1/1/1999. It paid the vendor $4,000 cash and signed a promissory note for an additional $9,000, due in 3 years (10% interest annually). In addition, the firm spent $400 to transport the machine to its factory, $600 to install it, and $1,200 to train employees who will operate it. The manufacturing manager expects the machine to last for 6 years, over which time it will provide 24,000 hours of service. The estimated salvage value is $2,000. a. Calculate the depreciation charge for each of the first three years using the straight-line method. b. Calculate the annual depreciation charges under the activity method. Actual machine usage was 5,000 hours, 4,500 hours, and 4,000 hours respectively in 1999, 2000, and 2001. c. At the start of 2002, Dove makes an improvement to the machine that extends its useful service life to a total of 8 years. The improvement costs $4,000.
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This note was uploaded on 01/16/2012 for the course ACCOUNTING 15.501 / 1 taught by Professor Sugataroychowdhury during the Spring '04 term at MIT.