On June 1, a machine costing $660,000 with a 5-year life and an estimated $50,000 salvage...

On June 1, a machine costing $660,000 with a 5-year life and an estimated $50,000 salvage value was purchased. It was also estimated that the machine would produce 200,000 units during its life. Actual production would be 40,000 units per year for all five years.

1. Using the depreciation template provided, determine the amount of depreciation expense for the third year under each of the following assumptions:

1.The company uses the straight-line method of depreciation.

2.The company uses the units-of-production method of depreciation.

3.The company uses the double-declining-balance method of depreciation.

2. Assuming straight line depreciation, prepare journal entry for the third year.

3. Assume the company sold the machine at the end of the fourth year for $100,000. Prepare a journal entry for asset disposal in the fourth year.

4. Assume you are the chief accountant of ABC Inc., a sheetrock manufacturer. Determine how you will choose, based on best industry practices, the depreciation method for ABC Inc. to use.

Solutions

Expert Solution

Total cost				660000
Salvage value				50000

Depreciation amount				610000
(Cost-Salvage value)
Life				5 years
Annual depreciation				122000
Dep as per SLM
Year	Annual Dep	Acc. Dep	Cost	Book value at end
1	122000	122000	660000	538000
2	122000	244000	660000	416000
3	122000	366000	660000	294000
4	122000	488000	660000	172000
5	122000	610000	660000	50000

Dep as unit of production
Depreciable amount				610000
Units of production				200000
Depreciation pr unit produced				3.05
Annual production				40000
Annual depreciation				122000
Year	Annual Dep	Acc. Dep	Cost	Book value at end
1	122000	122000	660000	538000
2	122000	244000	660000	416000
3	122000	366000	660000	294000
4	122000	488000	660000	172000
5	122000	610000	660000	50000

Dep as per DDB
Rate of SLM ( 100/5)			20%
Rate of DDB (20*2)			40%
Year	Annual Dep	Acc. Dep	Cost	Book value at end
1	264000	264000	660000	396000
2	158400	422400	660000	237600
3	95040	517440	660000	142560
4	57024	574464	660000	85536
5	35536	610000	660000	50000

Req 2:
Journal entry
yr-2	Depreciation expense Account Dr.				122000
	Accumulated depreciation					122000

Req 3:
Accumulated dep Account Dr.					488000
Cash Account Dr.					100000
Loss on sale of assets					72000
Machine account						660000

Req4: Units of production shall be used, as it gives reliability over accuracy of depreciation expene due to actual usage based.

ekkarill92 answered 1 year ago

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