Question

Problem 10-2A Depreciation methods LO P1

A machine costing $210,200 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 478,000 units of product during its life. It actually produces the following units: 121,800 in 1st year, 123,600 in 2nd year, 121,200 in 3rd year, 121,400 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:

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

Answer 1

Solution 1:

Cost of machine = $210,200

Salvage value = $19,000

Depreciable cost = $210,200 - $19,000 = $191,200

Useful life = 4 years

Annual depreciation using SLM = $191,200 / 4 = $47,800

Depreciation rate SLM = $47,800 / $191,200 = 25%

Carp Corp. - 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	$210,200.00
1		$191,200.00	$47,800.00	$47,800.00	$162,400.00
2		$191,200.00	$47,800.00	$95,600.00	$114,600.00
3		$191,200.00	$47,800.00	$143,400.00	$66,800.00
4		$191,200.00	$47,800.00	$191,200.00	$19,000.00
Total			$191,200.00

Solution 2:

Depreciation per unit = $191,200 / 478000 = $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	$210,200.00
1		$0.40	121800	$48,720.00	$48,720.00	$161,480.00
2		$0.40	123600	$49,440.00	$98,160.00	$112,040.00
3		$0.40	121200	$48,480.00	$146,640.00	$63,560.00
4		$0.40		$44,560.00	$191,200.00	$19,000.00
Total				$191,200.00

Solution 3:

Depreciation rate - DDB = Straight line rate * 2 = 25%*2 = 50%

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	$210,200
1		$210,200	50%	$105,100	$105,100	$105,100
2		$105,100	50%	$52,550	$157,650	$52,550
3		$52,550	50%	$26,275	$183,925	$26,275
4		$26,275		$7,275	$191,200	$19,000
Total				$191,200