Question

A machine costing $214,400 with a four-year life and an estimated $18,000 salvage value is installed in Luther Company’s factory on January 1. The factory manager estimates the machine will produce 491,000 units of product during its life. It actually produces the following units: 122,100 in 1st year, 123,200 in 2nd year, 120,600 in 3rd year, 135,100 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

Depreciation for each year for the machine under each Straight-line depreciation.

Straight-Line Depreciation
Year	Depreciation Expense
1	$49,100
2	$49,100
3	$49,100
4	$49,100
Total	$1,96,400

Straight-Line Depreciation = [Cost of the asset – Salvage Value] / Useful life of the asset

= [$214,400 - $18,000] / 4 Years

= $196,400 / 4 Years

= $49,100 per year

Depreciation for each year for the machine under each Units of production.

Units of Production
Year	Depreciable Units	Depreciation per unit	Depreciation Expense
1	1,22,100	$0.40	48,840
2	1,23,200	$0.40	49,280
3	1,20,600	$0.40	48,240
4	1,25,100	$0.40	50,040
Total	4,91,000		$1,96,400

Depreciation per unit = [Cost of the asset – Salvage Value] / Estimated total number of units

= [$214,400 - $18,000] / 491,000 Units

= $196,400 / 491,000 Units

= $0.40 per unit

The number of units in Year 4 = 125,100 units [491,000 – 122,100 – 123,200 – 120,600]

Compute depreciation for each year for the machine under each Double-declining-balance.

Depreciation under Double Declining Method is calculated by using the following formula

Depreciation Expense = Book Value Beginning x Depreciation Rate

Depreciation Rate = 2 x (1 / Useful Life]

= 2 x (1/4)

= 50%

	DDB Depreciation for the period			End of the Period
Year	Beginning of Period Book Value	Depreciation Rate	Depreciation Expenses	Accumulated Depreciation	Book Value
1	2,14,400	50.00%	1,07,200	1,07,200	1,07,200
2	1,07,200	50.00%	53,600	1,60,800	53,600
3	53,600	50.00%	26,800	1,87,600	26,800
4	26,800	32.84%	8,800	1,96,400	18,000
TOTAL			1,94,400

Depreciation Rate for the 4^th year = [(Book Value at the end of 3^rd year – Salvage Value) / Book Value at the end of 3^rd year] x 100

= [($26,800 - $18,000) / $26,800] x 100

= [$8,800 / $26,800] x 100

= 32.84%