Question

Shining cookie company inc in Murfreesboro Tn bought a new icream maker at the

beginning of year at a cost of $16,000. The estimated useful lofe was four years and the residual value was $1,600.00. Assume that the estimated productive life of the machine was 9,600 hours. Actual annual

usage was 3,840 hours in year 1; 2,880 hours in year 3; amd 960 hours in year 4. Complete the depreciation schedule for each of the alternative methods. Straightline, Units-of-production, and Double declining balance

Answer 1

Straight-Line Depreciation Method:

Cost of Equipment = $16,000
Residual Value = $1,600
Useful Life = 4 years

Annual Depreciation = (Cost of Equipment - Residual Value) / Useful Life
Annual Depreciation = ($16,000 - $1,600) / 4
Annual Depreciation = $3,600

Units-of-Production Depreciation Method:

Cost of Equipment = $16,000
Residual Value = $1,600
Useful Life = 9,600 hours

Depreciation per hour = (Cost of Equipment - Residual Value) / Useful Life
Depreciation per hour = ($16,000 - $1,600) / 9,600
Depreciation per hour = $1.50

Double-Declining-Balance Depreciation Method:

Double-Declining-Balance Depreciation Rate = 2 / Useful Life
Double-Declining-Balance Depreciation Rate = 2 / 4
Double-Declining-Balance Depreciation Rate = 50%