Question

A machine costing $213,800 with a four-year life and an estimated $19,000 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: 121,700 in 1st year, 123,800 in 2nd year, 121,100 in 3rd year, 130,400 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: 1. 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.)

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

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

Answer 1

• All working forms part of the answer
• Straight Line Depreciation

A	Cost	$          213,800.00
B	Residual Value	$            19,000.00
C=A - B	Depreciable base	$          194,800.00
D	Life [in years]	4
E=C/D	Annual SLM depreciation	$            48,700.00

Year	Book Value	Depreciation expense	Ending Book Value
1	$     213,800.00	$            48,700.00	$       165,100.00
2	$     165,100.00	$            48,700.00	$       116,400.00
3	$     116,400.00	$            48,700.00	$         67,700.00
4	$       67,700.00	$            48,700.00	$         19,000.00
	TOTAL	$ 194,800

• Unit of Production Method

A	Cost	$          213,800.00
B	Residual Value	$            19,000.00
C=A - B	Depreciable base	$          194,800.00
D	Usage	487,000
E	Depreciation per …..	$                       0.40 per unit

Year	Book Value	Usage	Depreciation expense	Ending Book Value
1	$     213,800.00	121,700	$         48,680.00	$           165,120.00
2	$     165,120.00	123,800	$         49,520.00	$           115,600.00
3	$     115,600.00	121,100	$         48,440.00	$             67,160.00
4	$       67,160.00	-	$     48,160.00	$             19,000.00
TOTAL depreciation			$ 194,800

• Double Declining balance

A	Cost	$          213,800.00
B	Residual Value	$            19,000.00
C=A - B	Depreciable base	$          194,800.00
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	$     213,800.00	50.00%	$       106,900.00	$           106,900.00	$      106,900.00
2	$     106,900.00	50.00%	$         53,450.00	$             53,450.00	$      160,350.00
3	$       53,450.00	50.00%	$         26,725.00	$             26,725.00	$      187,075.00
4	$       26,725.00		$         7,725	$             19,000.00	$      194,800.00
TOTAL depreciation			$ 194,800