Question

6. The Jefferson Co. purchased a machine on January 1, 201 The machine cost $595,000. It had an estimated life of ten years, or 30,000 units, and an estimated residual value of $40,000. In 2016, Jeffries produced 3,000 units.
   
   Required:
   
   Compute the depreciation charge for 2016 using each of the following methods:
   

a.	Double-declining-balance method
b.	Activity method (units of output)
c.	Sum-of-the-years'-digits method
d.	Straight-line method I think I did this right, but want to make sure

Answer 1

Computation of Depreciation expense for the year 2016:

a)

Double Declining Balance Methods:

Double declining balance rate = (100/useful life)*2 = (100/10)*2 = 20%

Depreciation expense under double declining balance method =

Cost of asset * Double declining balance rate =$595000*20% = $119000

b)

Activity Methods:

Units of activity method = (Cost of Machine – Residual Value)* Units Produced in current year/Total Production units

In 2016, Depreciation expense under Units of activity method =

= ($595000 - $40000)*3000/30000= $555000*0.1 = $55500

c)

Sum of year digit methods:

Sum of year digit methods = n (n+1)/2 = 10(10+1)/2 = 10*5.5 = 55

Where n = numbers of useful life

(Cost of asset – Residual value)*Remaining useful life / sum of year digit

= ($595000 - $40000)*10/55 = $555000*10/55 = 100909.10

d)

Straight line methods:

Straight line depreciation expense =

(Cost of asset – Residual value) / Useful life

= ($595000 - $40000) / 10 = $555000 / 10 = $55500