Question

A machine costing $214,800 with a four-year life and an estimated $20,000 salvage value is installed in Luther Company’s factory on January 1. The factory manager estimates the machine will produce 487,000 units of product during its life. It actually produces the following units: 121,800 in 1st year, 122,600 in 2nd year, 121,500 in 3rd year, 131,100 in 4th year. The total number of units produced by the end of year 4 exceeds the original estimate—this difference was not predicted. (The machine must not be depreciated below its estimated salvage value.)

  
Required:

Compute depreciation for each year (and total depreciation of all years combined) for the machine under each depreciation method. (Round your per unit depreciation to 2 decimal places. Round your answers to the nearest whole dollar.)

Compute depreciation for each year (and total depreciation of all years combined) for the machine under each Straight-line depreciation.

	Straight-Line Depreciation Year Depreciation Expense 1 2 3 4 Total $0

Compute depreciation for each year (and total depreciation of all years combined) for the machine under each Units of production.

	Units of Production Year Depreciable Units Depreciation per unit Depreciation Expense 1 2 3 4 Total $0

Compute depreciation for each year (and total depreciation of all years combined) for the machine under each Double-declining-balance.

	DDB Depreciation for the Period End of Period Year Beginning of Period Book Value Depreciation Rate Depreciation Expense Accumulated Depreciation Book Value 1 % $0 2 % 0 3 % 0 4 % 0 $0

Answer 1

Requirement 1

Straight line Method
A	Cost	$       2,14,800.00
B	Residual Value	$          20,000.00
C=A - B	Depreciable base	$       1,94,800.00
D	Life [in years left ]	$                     4.00
E=C/D	Annual SLM depreciation	$          48,700.00

    

Year	Book Value	Depreciation expense	Ending Book Value	Accumulated Depreciation
1	$     2,14,800.00	$          48,700.00	$   1,66,100.00	$        48,700.00
2	$     1,66,100.00	$          48,700.00	$   1,17,400.00	$        97,400.00
3	$     1,17,400.00	$          48,700.00	$       68,700.00	$    1,46,100.00
4	$         68,700.00	$          48,700.00	$       20,000.00	$    1,94,800.00

Straight-Line Depreciation
Year	Depreciation Expense
1	$          48,700.00
2	$          48,700.00
3	$          48,700.00
4	$          48,700.00
Total	$       1,94,800.00

Requirement 2

Units of Production method
A	Cost	$       2,14,800.00
B	Residual Value	$          20,000.00
C=A - B	Depreciable base	$       1,94,800.00
D	Usage in units(in Hours)	487000
E	Depreciation per Unit	$     0.40

Year	Book Value	Usage	Depreciation expense	Ending Book Value	Accumulated Depreciation
1	$     2,14,800.00	121800	$       48,720.00	$              1,66,080.00	$             48,720.00
2	$     1,66,080.00	122600	$       49,040.00	$              1,17,040.00	$             97,760.00
3	$     1,17,040.00	121500	$       48,600.00	$                 68,440.00	$         1,46,360.00
4	$         68,440.00	131100	$       48,440.00	$                 20,000.00	$         1,94,800.00

Units of Production
Year	Depreciable Units	Depreciation per unit	Depreciation Expense
1	121800	$     0.40	$       48,720.00
2	122600	$     0.40	$       49,040.00
3	121500	$     0.40	$       48,600.00
4	131100	$     0.40	$       48,440.00
Total	497000		$       1,94,800.00

Requirement 3

Double declining Method
A	Cost	$       2,14,800.00
B	Residual Value	$          20,000.00
C=A - B	Depreciable base	$       1,94,800.00
D	Life [in years]	4
E=C/D	Annual SLM depreciation	$          48,700.00
F=E/C	SLM Rate	25.00%
G=F x 2	DDB Rate	50.00%

Year	Beginning Book Value	Depreciation rate	Depreciation expense	Ending Book Value	Accumulated Depreciation
1	$     2,14,800.00	50.00%	$   1,07,400.00	$   1,07,400.00	$ 1,07,400.00
2	$     1,07,400.00	50.00%	$      53,700.00	$      53,700.00	$ 1,61,100.00
3	$         53,700.00	50.00%	$       26,850.00	$      26,850.00	$ 1,87,950.00
4	$         26,850.00	50.00%	$         6,850.00	$      20,000.00	$ 1,94,800.00

	DDB Depreciation for the Period				End of Period
Year	Beginning of Period Book Value	Depreciation Rate		Depreciation Expense	Accumulated Depreciation	Book Value
1	$     2,14,800.00	50.00%		$   1,07,400.00	$ 1,07,400.00	$   1,07,400.00
2	$     1,07,400.00	50.00%		$      53,700.00	$ 1,61,100.00	$      53,700.00
3	$         53,700.00	50.00%		$       26,850.00	$ 1,87,950.00	$      26,850.00
4	$         26,850.00	50.00%		$         6,850.00	$ 1,94,800.00	$      20,000.00
				$ 1,94,800.00