Question

A machine costing $209,000 with a four-year life and an estimated $17,000 salvage value is installed in Luther Company’s factory on January 1. The factory manager estimates the machine will produce 480,000 units of product during its life. It actually produces the following units: 122,500 in Year 1, 124,300 in Year 2, 121,600 in Year 3, 121,600 in Year 4. The total number of units produced by the end of Year 4 exceeds the original estimate—this difference was not predicted. (The machine cannot 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.

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

b/

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

	Units of Production Year Units Depreciable Units Depreciation per unit Depreciation Expense 1 122,500 2 124,300 3 121,600 4 121,600 Total

Compute depreciation for each year (and total depreciation of all years combined) for the machine under the 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 Total $0

Answer 1

Solution 1:
Luther Company. - Straight line method
Year	Asset Cost	Depreciable Cost	Depreciation Expense for the year (1/4 of depreciable cost)	Accumulated Depreciation	Ending Book Value
Purchase Date	$209,000.00
1		$192,000.00	$48,000.00	$48,000.00	$161,000.00
2		$192,000.00	$48,000.00	$96,000.00	$113,000.00
3		$192,000.00	$48,000.00	$144,000.00	$65,000.00
4		$192,000.00	$48,000.00	$192,000.00	$17,000.00
Total			$192,000.00

Solution 2:

Depreication per unit = Depreciable cost / Estimated production during life of machine = $192,000 / 480000 = $0.40 per unit

Luther Company - Unit of Production method
Date	Asset Cost	Depreciation per unit	Nos of units produced	Depreciation Expense for the year	Accumulated Depreciation	Ending Book Value
Purchase Date	$209,000.00
1		$0.40	122500	$49,000.00	$49,000.00	$160,000.00
2		$0.40	124300	$49,720.00	$98,720.00	$110,280.00
3		$0.40	121600	$48,640.00	$147,360.00	$61,640.00
4		$0.40		$44,640.00	$192,000.00	$17,000.00
Total				$192,000.00

Solution 3:
Depreciation Schedule - Double Declining Balance Method
Date	Asset Cost	Book Value	Depreciation Rate (25%*2)	Depreciation Expense for the year	Accumulated Depreciation	Ending Book Value
Purchase Date	$209,000
1		$209,000	50%	$104,500	$104,500	$104,500
2		$104,500	50%	$52,250	$156,750	$52,250
3		$52,250	50%	$26,125	$182,875	$26,125
4		$26,125		$9,125	$192,000	$17,000
Total				$192,000