Question

Cheetah Copy purchased a new copy machine. The new machine cost $110,000 including installation. The company estimates the equipment will have a residual value of $27,500. Cheetah Copy also estimates it will use the machine for four years or about 8,000 total hours. Actual use per year was as follows:

Year	Hours Used
1	2,000
2	1,600
3	2,000
4	3,200

1. Prepare a depreciation schedule for four years using the straight-line method. (Do not round your intermediate calculations.)

2. Prepare a depreciation schedule for four years using the double-declining-balance method. (Hint: The asset will be depreciated in only two years.) (Do not round your intermediate calculations.)

3. Prepare a depreciation schedule for four years using the activity-based method. (Round your "Depreciation Rate" to 3 decimal places and use this amount in all subsequent calculations.)

Answer 1

Correct Answer:

Requirement 1:

Year	Book Value	Depreciation expense	Ending Book Value	Accumulated Depreciation
1	$     110,000.00	$            20,625.00	$         89,375.00	$       20,625.00
2	$       89,375.00	$            20,625.00	$         68,750.00	$       41,250.00
3	$       68,750.00	$            20,625.00	$         48,125.00	$       61,875.00
4	$       48,125.00	$            20,625.00	$         27,500.00	$       82,500.00

Working:

Straight Line Method
A	Cost	$          110,000.00
B	Residual Value	$            27,500.00
C=A - B	Depreciable base	$            82,500.00
D	Life [in years]	4
E=C/D	Annual SLM depreciation	$            20,625.00

Requirement 2:

Year	Beginning Book Value	Depreciation rate	Depreciation expense	Ending Book Value
1	$     110,000.00	50.00%	$         41,250.00	$       68,750.00
2	$       68,750.00	50.00%	$         34,375.00	$       34,375.00
3	$       34,375.00	50.00%	$            6,875.00	$       27,500.00
4	$       27,500.00	50.00%	$                         0	$       27,500.00

Working:

Double declining method
A	Cost	$          110,000.00
B	Residual Value	$            27,500.00
C=A - B	Depreciable base	$            82,500.00
D	Life [in years]	4
E=C/D	Annual SLM depreciation	$            20,625.00
F=E/C	SLM Rate	25.00%
G=F x 2	DDB Rate	50.00%

Requirement 3:

Year	Book Value	Usage	Depreciation expense	Ending Book Value
1	$     110,000.00	2000	$         20,625.00	$       89,375.00
2	$       89,375.00	1600	$         16,500.00	$       72,875.00
3	$       72,875.00	2000	$         20,625.00	$       52,250.00
4	$       52,250.00	3200	$         24,750.00	$       27,500.00

Working:

Bus 3 (Unit of Activity)
A	Cost	$          110,000.00
B	Residual Value	$            27,500.00
C=A - B	Depreciable base	$            82,500.00
D	Usage	8000
E	Depreciation per Hour	10.31

End of answer.

Thanks.