Moog, Inc. just purchased a new Tungsten Inert Gas (TIG) welding machine at the start of 2017. The equipment cost $368,460 and has an estimated life of five years. At the end of this time the estimated salvage value is $41,400.
(a) You have been asked to help prepare the financial information regarding this purchase to be included in the annual financial report to shareholders. Use a straight-line depreciation method and calculate the following values at the end of each year of the equipment’s useful life: annual depreciation amount, accumulated depreciation, and book value of the equipment.
(b) Repeat part (a) using a double declining balance method.
(c) You’ve also been asked to help with financial reporting for tax purposes. Find the annual depreciation amount, accumulated depreciation, and book value of the purchase. The equipment falls into a seven-year MACRS property class.
(d) In March of the 4th year of ownership, Moog traded in the TIG welding machine for a newer, more efficient model. Assume that the original equipment is still depreciated according to a seven-year MACRS schedule. The newer model equipment costs $380,880 but the dealer has offered Moog an $82,800 trade-in allowance on the old equipment. Determine the cost basis (used to calculate deprecation for income tax purposes) of the new equipment purchase.
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