Question

Shining Cookie Company, Inc., in Murfreesboro, TN bought a new ice cream maker at the beginning of the year at a cost of $22,000. The estimated useful life was four years, and the residual value was $2,000. Assume that the estimated productive life of the machine was 10,000 hours. Actual annual usage was 4,000 hours in year 1; 3,000 hours in year 2; 2,000 hours in year 3; and 1,000 hours in year 4.

a. straight-line method

b.units of production

c. double declining balance

Answer 1

CALCULATION OF THE DEPRECIATION AS PER STRAIGHT LINE METHOD
Purchase Cost of Machine	$                22,000.00
Less: Salvage Value	$                  2,000.00
Net Value for Depreciation	$                20,000.00
Usefule life of the Assets	4 years
Depreciation per year = Value for Depreciation / 4 years =	5,000.00
Total Depreciation in 4 years = ($ 5,000 X 4)=	20,000.00
CALCULATION OF THE DEPRECIATION AS PER UNIT OF PRODUCTION METHOD
Purchase Cost of Machine	$                22,000.00
Less: Salvage Value	$                  2,000.00
Net Value for Depreciation	$                20,000.00
Expected to produce units	10,000.00	Hours
Depreciation per unit =	2.00	Per Hours
($ 20,000 / 2,000 Units)
Depreciation for Year 1 = (4000 units * $ 2.00)	$                  8,000.00
Depreciation for Year 2 = (3000 units * $ 2.00)	$                  6,000.00
Depreciation for Year 3 = (2000 units * $ 2.00)	$                  4,000.00
Depreciation for Year 4 = (1000 units * $ 2.00)	$                  2,000.00
CALCULATION OF THE DEPRECIATION AS PER SUM OF DOUBLE DECLINE METHOD
Purchase Cost of Machine	$                22,000.00
Useful Life =	4 years
Depreciation per year =	$                  5,500.00
(Purchase price / Useful life)
Rate of Depreciation =	0.25	OR 25%
(Depreication / Purchase price )
Double decline deprection rate = 25% * 2 =	50.0%
Purchase Value of the Machiene	$                22,000.00
Depreciation for the year 1 @ 50%	$                11,000.00
Closing balance for the year 1	$                11,000.00
Opening Balance for the year 2	$                11,000.00
Depreciation for the year 2 @ 50%	$                  5,500.00
Closing balance for the year 2	5,500.00
Opening Balance for the year 3	$                  5,500.00
Depreciation for the year 3 @ 50%	$                  2,750.00
Closing balance for the year 3	2,750.00
Opening Balance for the year 4	$                  2,750.00
Depreciation for the year 4 @ 50%	$                  1,375.00
Closing balance for the year 4	1,375.00