Question

Problem 8-2A Depreciation methods LO P1

A machine costing $210,000 with a four-year life and an estimated $16,000 salvage value is installed in Luther Company’s factory on January 1. The factory manager estimates the machine will produce 485,000 units of product during its life. It actually produces the following units: 122,200 in Year 1, 123,500 in Year 2, 121,300 in Year 3, 128,000 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. (Round your per unit depreciation to 2 decimal places. Round your answers to the nearest whole dollar.)

Answer 1

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		Year 1	Year 2	Year 3	Year 4	Total
Straight Line	Working-1	$         48,500	$                       48,500	$                             48,500	$   48,500	$   194,000
Unit of Production	Working-2	$         48,880	$                       49,400	$                             48,520	$   47,200	$   194,000
Double Declining balance	Working-3					$               -
Working-1
Cost of asset		$       210,000
Less: Salvage Value		$       (16,000)
Depreciable Value	a	$       194,000
Life	b	4 Year
Annual Depreciation	a/b	$         48,500
Working-2
Cost per Unit	$194,000/485,000 units	$              0.40	per unit
Year	Production unit	per unit	Dep
	a	b	a*b
Year 1	122,200	$              0.40	$                       48,880
Year 2	123,500	$              0.40	$                       49,400
Year 3	121,300	$              0.40	$                       48,520
Year 4 (Note below)	118,000	$              0.40	$                       47,200
			$                     194,000
Dep for Three year	$                                                   146,800
Less: Total Value	$                                                   194,000
4th year Dep	$                                                     47,200
Unit for 4th year	$47,200/0.40	118,000
Working-3
Depreciation Rate (100/4*2)	50%
Year	Beginning Book value	Dep 50%	Dep end of year	Ending Book value
Year 1	$                                                   210,000	$       105,000	$                     105,000	$                           105,000
Year 2	$                                                   105,000	$         52,500	$                     157,500	$                             52,500
Year 3	$                                                     52,500	$         26,250	$                     183,750	$                             26,250
Year 4 (Note below)	$                                                     26,250	$         10,250	$                     194,000	$                             16,000
		$       194,000
4th year Dep	$194,000-3 Year Dep $183,750