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Ekman Corporation purchased a new laser printer to be used in its business. The printer had a list price of $4,000, but Ekman was able to purchase it for $3,250. The company expects it to have a useful life of five years, with an estimated residual value of $250. Ekman is paying the delivery costs of $100, set-up and debugging costs of $300, and the costs of purchasing an appropriate table for $50. There was sales tax of 10 per cent on the purchase price of the printer but not on the other costs.
Required:
- Calculate the total cost of the laser printer.
- Ekman management asks you whether the straight-line or double-declining balance method of depreciation would be most appropriate for the printer. Provide calculations to support your answer. Assume the company uses the ½ year rule to calculate depreciation expense in the year of acquisition and disposal.
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