Question

On January 2, 2015, Roth, Inc. purchased a laser cutting machine to be used in the fabrication of a part for one of its key products. The machine cost $120,000, and its estimated useful life was four years or 1,150,000 cuttings, after which it could be sold for $5,000.

Required

a. Calculate each year’s depreciation expense for the machine's useful life under each of the following depreciation methods (round all answers to the nearest dollar):

1. Straight-line.
2. Double-declining balance.
3. Units-of-production. (Assume annual production in cuttings of 280,000; 430,000; 360,000; and 80,000.)

1. Straight-Line

Year	Depreciation Expense
2015	$Answer
2016	Answer
2017	Answer
2018	Answer

2. Double-declining balance

Year	Depreciation Expense
2015	$Answer
2016	Answer
2017	Answer
2018	Answer
2019	Answer

3. Units of Production

Year	Depreciation Expense
2015	$Answer
2016	Answer
2017	Answer
2018	Answer

b. Assume that the machine was purchased on July 1, 2015. Calculate each year’s depreciation expense for the machine's useful life under each of the following depreciation methods:

1. Straight-line.
2. Double-declining balance.

1. Straight-Line

Year	Depreciation Expense
2015	$Answer
2016	Answer
2017	Answer
2018	Answer
2019	Answer

2. Double-declining balance (Round answers to the nearest whole number, when appropriate.)

Year	Depreciation Expense
2015	$Answer
2016	Answer
2017	Answer
2018	Answer
2019	Answer

Answer 1

Answer to Part a.

Straight Line Depreciation:

Depreciation per Year = (Cost – Salvage Value) / Useful Life
Depreciation per Year = (120,000 – 5,000) / 4
Depreciation per Year = $28,750

Year	Depreciation Expense
2015	$28,750
2016	$28,750
2017	$28,750
2018	$28,750

Double Declining Depreciation:

Double Declining Depreciation Rate = 2 * Straight Line Depreciation Rate
Straight Line Depreciation Rate = 1 / Useful Life
Straight Line Depreciation Rate = 1 / 4 = 25%
Double Declining Depreciation Rate = 2 * 25% = 50%

Year	Depreciation Expense
2015	$60,000
2016	$30,000
2017	$15,000
2018	$7,500

Unit of Production Depreciation:

Depreciation per Unit = (Cost – Salvage Value) / Expected Units over life
Depreciation per Unit = (120,000 – 5,000) / 1,150,000
Depreciation per Unit = $0.10

Depreciation for the year 2015 = 280,000 * $0.10 = $28,000
Depreciation for the year 2016 = 430,000 * $0.10 = $43,000
Depreciation for the year 2017 = 360,000 * $0.10 = $36,000
Depreciation for the year 2018 = 80,000 * $0.10 = $8,000

Year	Depreciation Expense
2015	$28,000
2016	$43,000
2017	$36,000
2018	$8,000

Answer to Part b.

Straight Line Depreciation:

Depreciation per Year = (Cost – Salvage Value) / Useful Life
Depreciation per Year = (120,000 – 5,000) / 4
Depreciation per Year = $28,750

Depreciation in the year 2015 will be charged for 6 months.

Depreciation for the year 2015 = $28,750 * 6/12 = $14,375

Year	Depreciation Expense
2015	$14,375
2016	$28,750
2017	$28,750
2018	$28,750

Double Declining Depreciation:

Double Declining Depreciation Rate = 2 * Straight Line Depreciation Rate
Straight Line Depreciation Rate = 1 / Useful Life
Straight Line Depreciation Rate = 1 / 4 = 25%
Double Declining Depreciation Rate = 2 * 25% = 50%

Depreciation in the year 2015 will be charged for 6 months.

Year	Depreciation Expense
2015	$30,000
2016	$45,000
2017	$22,500
2018	$11,250