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In: Accounting

KLM Company purchased a Mixer Machine on January 2, 2008, for $14,500. The Mixer was expected...

KLM Company purchased a Mixer Machine on January 2, 2008, for $14,500. The Mixer was expected to have a useful life of five (5) years and a residual value of $1,000. The company engineers estimated that the Mixer would have a useful life of 7,500 hours. It was used 1,500 hours in 2008, 2625 hours in 2009, 2250 hours in 2010, 750 hours in 2011, and 375 hours in 2012. KLM Company's year end is December 31. Required:

1. Compute the depreciation expense and carrying value for 2008 to 2012, using the following methods: (a) Straight-Line, (b) Production, (c) Double-Declining-Balance.

2. Prepare the adjusting entry to record the depreciation for 2008 that you that you calculated in 1(a), 1(b), and 1(c). (Three separate independent entries.)

3. Show Accumulated Depreciation Account (in T Account form) using all three (3) methods mentioned in 2 from 2008 to 2012. (Three separate independent accounts.)

4. Show the Balance Sheet presentation for the Mixer Machine after the entries in 2, under all three methods, on December 31, 2008. (Three separate independent presentations.)

5. Show the Balance Sheet presentation for the Mixer Machine after the entries in 2, under all three methods, on December 31, 2012. (Three separate independent presentations.)

6. What conclusions can you draw from the patterns of yearly depreciation?

Solutions

Expert Solution

1
(a) Straight-Line method:
Depreciation=(Original cost-Salvage value)/Useful life=(14500-1000)/5=$ 2700
It will be same for all the 5 years
Carriying value
2008 Carriying value as on the beginning of the year-Depreciation=14500-2700=$ 11800
2009 Carriying value as on the beginning of the year-Depreciation=11800-2700=$ 9100
2010 Carriying value as on the beginning of the year-Depreciation=9100-2700=$ 6400
2011 Carriying value as on the beginning of the year-Depreciation=6400-2700=$ 3700
2012 Carriying value as on the beginning of the year-Depreciation=3700-2700=$ 1000
(b) Production method:
Depreciation per hours of production=(Original cost-Salvage value)/Hours of production during useful life=(14500-1000)/7500=$ 1.8 per hour
Depreciation
2008 Hours=1500 Depreciation=Depreciation per hours of production*Hours produced during the year=1.8*1500=$ 2700
2009 Hours=2625 Depreciation=Depreciation per hours of production*Hours produced during the year=1.8*2625=$ 4725
2010 Hours=2250 Depreciation=Depreciation per hours of production*Hours produced during the year=1.8*2250=$ 4050
2011 Hours=750 Depreciation=Depreciation per hours of production*Hours produced during the year=1.8*750=$ 1350
2012 Hours=375 Depreciation=Depreciation per hours of production*Hours produced during the year=1.8*375=$ 675
Carriying value
2008 Carriying value as on the beginning of the year-Depreciation=14500-2700=$ 11800
2009 Carriying value as on the beginning of the year-Depreciation=11800-4725=$ 7075
2010 Carriying value as on the beginning of the year-Depreciation=7075-4050=$ 3025
2011 Carriying value as on the beginning of the year-Depreciation=3025-1350=$ 1675
2012 Carriying value as on the beginning of the year-Depreciation=1675-675=$ 1000
© Double-declining balance:
Depreciation rate=200%*Straight-line rate of depreciation=200%*(1/Useful life)=200%*(1/5)=0.40=40%
2008 Depreciation=14500*40%=$ 5800 Carriying value=Carriying value as on the beginning of the year-Depreciation=14500-5800=$ 8700
2009 Depreciation=8700*40%=$ 3480 Carriying value=Carriying value as on the beginning of the year-Depreciation=8700-3480=$ 5220
2010 Depreciation=5220*40%=$ 2088 Carriying value=Carriying value as on the beginning of the year-Depreciation=5220-2088=$ 3132
2011 Depreciation=3132*40%=$ 1253 Carriying value=Carriying value as on the beginning of the year-Depreciation=3132-1253=$ 1879
2012 Depreciation=1879*40%=$ 752 Carriying value=Carriying value as on the beginning of the year-Depreciation=1879-752=$ 1127
2 Adjusting entry
Ref. Account titles and explanation Debit Credit
1-a. Depreciation expense 2700
Accumulated depreciation 2700
1-b. Depreciation expense 2700
Accumulated depreciation 2700
1-c. Depreciation expense 5800
Accumulated depreciation 5800
3 Straight-Line method:
Accumulated depreciation
Date Particulars Debit Date Particulars Credit
2008
Dec 31. Depreciation expense 2700
2700
2009
Jan 1. Balance 2700
Dec 31. Depreciation expense 2700
5400
2010
Jan 1. Balance 5400
Dec 31. Depreciation expense 2700
8100
2011
Jan 1. Balance 8100
Dec 31. Depreciation expense 2700
10800
2012
Jan 1. Balance 10800
Dec 31. Depreciation expense 2700
13500
2013
Jan 1. Balance 13500
Production method:
Accumulated depreciation
Date Particulars Debit Date Particulars Credit
2008
Dec 31. Depreciation expense 2700
2700
2009
Jan 1. Balance 2700
Dec 31. Depreciation expense 4725
7425
2010
Jan 1. Balance 7425
Dec 31. Depreciation expense 4050
11475
2011
Jan 1. Balance 11475
Dec 31. Depreciation expense 1350
12825
2012
Jan 1. Balance 12825
Dec 31. Depreciation expense 675
13500
2013
Jan 1. Balance 13500
Double-declining balance:
Accumulated depreciation
Date Particulars Debit Date Particulars Credit
2008
Dec 31. Depreciation expense 5800
5800
2009
Jan 1. Balance 5800
Dec 31. Depreciation expense 3480
9280
2010
Jan 1. Balance 9280
Dec 31. Depreciation expense 2088
11368
2011
Jan 1. Balance 11368
Dec 31. Depreciation expense 1253
12621
2012
Jan 1. Balance 12621
Dec 31. Depreciation expense 752
13373
2013
Jan 1. Balance 13373
4 Straight-Line method:
Balance sheet
Property,Plant and Equipment $
Machine 14500
Less: Accumulated depreciation 2700
Carriying value 11800
Production method:
Balance sheet
Property,Plant and Equipment $
Machine 14500
Less: Accumulated depreciation 2700
Carriying value 11800
Double-declining balance:
Balance sheet
Property,Plant and Equipment $
Machine 14500
Less: Accumulated depreciation 5800
Carriying value 8700

ekkarill92 answered 2 years ago
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