Question

I need explanations for the calculations

On Jan. 1, 2017, Keeping Cats Clean, Inc., purchased a new machine to make high-end kitty litter boxes. The machine cost $125,000 and has a useful life of 5 years, or 480,000 boxes manufactured. It’s expected to have a residual value of $5,000. Please fill in the blanks in the table below, assuming that 120,000 boxes are manufactured in 2017 and 100,000 boxes are manufactured in 2018. NOTE THAT YOU ARE ASKED FOR THE AMOUNTS FOR 2018, the SECOND year of depreciation.

            

	Depreciation Expense for 2018	Accumulated Depreciation as of 12/31/18	Net Book (Carrying) Value as of 12/31/18
Straight-Line
Units of Production
Double-Declining Balance

Answer 1

Straight line

Depreciation expense per year = ( Initial cost - salvage value ) useful life

Depreciation expense per year = ( $ 125,000 - $ 5000 ) 5 years

Depreciation expense per year = $ 24,000

Accumulated Depreciation as of 12/31/18 = $ 48,000

Net Book (Carrying) Value as of 12/31/18 = ( $ 125,000 - $ 48,000)

Net Book (Carrying) Value as of 12/31/18 = $ 77,000

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Units of Production

Depreciation per unit = ( Cost - salvage value) Estimated useful life in units

Depreciation per unit = ( $ 125,000 - $ 5000) $ 480,000

Depreciation per unit = $ 0.25

Depreciation in year 2017 = $ 0.25 x 120,000

Depreciation in year 2017 = $ 30,000

Depreciation in year 2018 = $ 0.25 x 100,000

Depreciation in year 2018 = $ 25,000

Accumulated Depreciation as of 12/31/18 = $ 55,000

Net Book (Carrying) Value  as of 12/31/18 = $ 125,000 - $ 55,000

Net Book (Carrying) Value  as of 12/31/18 = $ 70,000

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Double-Declining Balance

DDB rate = ( 1 useful life ) x 2

DDB rate = ( 1 5 ) x 2

DDB rate = 40%

Depreciation expense in year 1 = 0.40 x $ 125,000

Depreciation expense in year 1 = $ 50,000

Book value of asset at end of year 1 = $ 75,000

Depreciation expense in year 2017 = 0.40 x $ 75,000

Depreciation expense in year 2018 = $ 30,000

Accumulated Depreciation as of 12/31/18 = $ 80,000

Net Book (Carrying) Value as of 12/31/18 = $ 45,000