Question

Question 6

Production Inc. has a year end date of June 30 and produces small electronic music parts. The company records depreciation to the nearest whole month in the year a capital assets is purchased. On March 20, 2016, they purchased and put into use a new production machine by spending the following amounts:

Invoice price of the machinery (purchase terms 1/10, n30) - paid March 25 $190,000

Freight to have the machinery delivered to Production's facility 5：000

Duty upon shipment of the machinery to Production's facility 4,900

Damage as a result of an employee dropping his Starbuck's latte

into the motor of the new machinery 3,000

Cost of mounting the machinery on a permanent platform in the warehouse 2,000

The management of Production Inc. has made the following assumptions:

Years the machine is expected to be used in the business 5 years

Number of products the machinery is expected to produce 1,000,000

Expected salvage value at the end of 5 years $50,000

REQUIRED:

Compute depreciation under each of the following three methods for the first 5 year ends of Production Inc. following the purchase of the machine.

Assume for the units of output method that the number of products produced in each of the following business years are as follows:

2016 80,000 units 2017 250,000 units

2018 245,000 units 2019 205,000 units

2020 225,000 units

Method-Units of Output	Depreciation expense	Acc. Depreciation	Net Book Value, End
2016
2017
2018
2019
2020

Method - Double Declining Balance	Net Book Value, Beginning of year	Depreciation Expense	Accumulated Depreciation	Net Book Value, End of year
2016
2017
2018
2019
2020

Method - Straight Line	Depreciation expense	Acc. Depreciation	Net Book Value, End
2016
2017
2018
2019
2020

Answer 1

Method-Units of Output Depreciation Expenses Acc. Depreciation Net Book Value,End 2016 11,200 11,200 178,800 2017 35,000 46,200 143,800 2018   34,300 80,500 109,500 2019   28,700 109,200 80,800 2020 31,500 140,700 49,300    Formula For Depreciation Expenses Depreciation Exp= (Cost-Salvage Value)* units per Year/ Expected Production

Method-Double Net book value at beg. DepreciationExp. Acc. Deprec. Net Book value End Declining Balance 2016 190,000 76,000 76,000 114,000 2017 114,000 45,600 121,600 68,400 2018    68,400 27,360 148,960 41,040 2019 41,040 16,416 165,376 24,624 2020 24,624 9,849.6    175,225.6 14,774.4 Formula For Depreciation Expenses Depreciation Expenses= 2*1/Estimated useful life* Cost

Method-Straight line Dep. Expenses Acc. Depreciation Net book Value, End 2016 28,000 28,000 162,000 2017 28,000 56,000 134,000 2018 28,000 84,000 106,000 2019 28,000 112,000 78,000 2020 28,000 140,000 50,000 Formula For depreciation expenses Dep. Expenses= Cost - Salvage Value/ Estimated useful life