Question

Duluth Ranch, Inc. purchased a machine on January 1, 2018. The cost of the machine was $36,500. Its estimated residual value was $11,500 at the end of an estimated 5-year life. The company expects to produce a total of 10,000 units. The company produced 1,350 units in 2018 and 1,800 units in 2019.


Required:

1. Calculate depreciation expense for 2018 and 2019 using the straight-line method.
2. Calculate the depreciation expense for 2018 and 2019 using the units-of-production method.
3. Calculate depreciation expense for 2018 through 2022 using the double-declining balance method.

Complete this question by entering your answers in the tabs below.

• Required A
• Required B
• Required C

Calculate depreciation expense for 2018 and 2019 using the straight-line method.

	2018 2019 Depreciation Expense Per Year

Answer 1

Answer-a)- The depreciation expense for 2018= $25000.

The depreciation expense for 2019= $25000.

Explanation- Straight line Method-

= Cost of asset- Salvage value of asset/No. of useful life (years)

=($36500-$11500)/5 years

=$42000/ 5 years

= $25000         

Year 2018 depreciation expense = $25000.

Year 2019 depreciation expense = $25000.

b)- The depreciation expense for 2018= $3375.

The depreciation expense for 2019= $4500.

Explanation- Units of activity method:-Annual depreciation expense per unit-

=Cost – salvage /Total units produced

=($36500-$11500)/10000 units

=$2.50 per unit produced

Depreciation expense in year 2018= Depreciation expense per units*units produced

                                                =$2.50 per unit*1350 units

                                                 =$3375

Depreciation expense in year 2019= Depreciation expense per units*units produced

                                                =$2.50 per unit*1800 units

                                                 =$4500

c)- The depreciation expense for 2018 = $14600.

The depreciation expense for 2019 = $8760.

Explanation- Double Declining balance depreciation is calculated using the following formula:

Depreciation = Depreciation Rate * Book Value of Asset

Depreciation rate is given by the following formula:

Depreciation Rate = Accelerator *Straight Line Rate

Straight-line Depreciation Rate = 1/5 = 0.20 = 20%
Declining Balance Rate = 2*20% = 40%

Diminishing balance method – Cost of equipment*Depreciation rate

Depreciation expense Year 2018 = $36500*40%

= $14600

Book value at the end of year 2018 = $36500-$14600 = $21900

Year 2019 Depreciation expense = $21900*40%= $8760