Question
In: Finance
Strong Metals Inc. purchased a new stamping machine at the beginning of the year at a...
Strong Metals Inc. purchased a new stamping machine at the beginning of the year at a cost of $1,330,000. The estimated residual value was $70,000. Assume that the estimated useful life was five years and the estimated productive life of the machine was 300,000 units. Actual annual production was as follows:
| Year | Units |
| 1 | 70,000 |
| 2 | 67,000 |
| 3 | 50,000 |
| 4 | 73,000 |
| 5 | 40,000 |
Required:
1. Complete a separate depreciation schedule for each of the alternative methods.
a. Straight-line.
b. Units-of-production.
c. Double-declining-balance.
Solutions
Expert Solution
| a. | Year end | Cost | Depreciation expense | Accumulated Depreciation expense | Book Value |
| 1 | $ 13,30,000.00 | $ 2,52,000.00 | $ 2,52,000.00 | $ 10,78,000.00 | |
| 2 | $ 13,30,000.00 | $ 2,52,000.00 | $ 5,04,000.00 | $ 8,26,000.00 | |
| 3 | $ 13,30,000.00 | $ 2,52,000.00 | $ 7,56,000.00 | $ 5,74,000.00 | |
| 4 | $ 13,30,000.00 | $ 2,52,000.00 | $ 10,08,000.00 | $ 3,22,000.00 | |
| 5 | $ 13,30,000.00 | $ 2,52,000.00 | $ 12,60,000.00 | $ 70,000.00 | |
| Working: | |||||
| Straight line depreciation | = | (Cost - Salvage value)/Useful Life | |||
| = | (1330000-70000)/5 | ||||
| = | $ 2,52,000 | ||||
| b. | Year end | Cost | Depreciation expense | Accumulated Depreciation expense | Book Value |
| 1 | $ 13,30,000.00 | $ 2,94,000.00 | $ 2,94,000.00 | $ 10,36,000.00 | |
| 2 | $ 13,30,000.00 | $ 2,81,400.00 | $ 5,75,400.00 | $ 7,54,600.00 | |
| 3 | $ 13,30,000.00 | $ 2,10,000.00 | $ 7,85,400.00 | $ 5,44,600.00 | |
| 4 | $ 13,30,000.00 | $ 3,06,600.00 | $ 10,92,000.00 | $ 2,38,000.00 | |
| 5 | $ 13,30,000.00 | $ 1,68,000.00 | $ 12,60,000.00 | $ 70,000.00 | |
| Working: | |||||
| Depreciation rate per unit | = | (Cost - Salvage value)/Useful Life | |||
| = | (1330000-70000)/300000 | ||||
| = | $ 4.20 | per unit | |||
| Year | Units produced | Depreciation rate per unit | Depreciation expense | ||
| 1 | 70,000 | $ 4.20 | $ 2,94,000.00 | ||
| 2 | 67,000 | $ 4.20 | $ 2,81,400.00 | ||
| 3 | 50,000 | $ 4.20 | $ 2,10,000.00 | ||
| 4 | 73,000 | $ 4.20 | $ 3,06,600.00 | ||
| 5 | 40,000 | $ 4.20 | $ 1,68,000.00 | ||
| c. | Year | Beginning book value | Depreciation expense | Accumulated Depreciation expense | Ending Book Value |
| a | b=a*40% | c | d=a-b | ||
| 1 | $ 13,30,000.00 | $ 5,32,000.00 | $ 5,32,000.00 | $ 7,98,000.00 | |
| 2 | $ 7,98,000.00 | $ 3,19,200.00 | $ 8,51,200.00 | $ 4,78,800.00 | |
| 3 | $ 4,78,800.00 | $ 1,91,520.00 | $ 10,42,720.00 | $ 2,87,280.00 | |
| 4 | $ 2,87,280.00 | $ 1,14,912.00 | $ 11,57,632.00 | $ 1,72,368.00 | |
| 5 | $ 1,72,368.00 | $ 68,947.20 | $ 12,26,579.20 | $ 1,03,420.80 | |
| Working; | |||||
| Straight line depreciation rate | = | 1/5 | |||
| = | 20% | ||||
| Double declining rate | = | 40% | |||
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