Question

On April 1 of the current year, a company purchased and placed in service a machine with a cost of $240,000. The company estimated the machine's useful life to be four years or 60,000 units of output with an estimated salvage value of $60,000. During the current year, 12,000 units were produced. Prepare the necessary December 31 adjusting journal entry to record depreciation for the current year assuming the company uses:

1.The straight-line method of depreciation

2.The units-of-production method of depreciation

3.The double-declining balance method of depreciation

Answer 1

Answer- 1)- Journal entry for current year depreciation=

DATE	ACCOUNTS TITLES & EXPLANATION	DEBIT	CREDIT
		$	$
Dec-31	Depreciation expense	33750
	Accumulated depreciation		33750
	(Being entry recorded for depreciation expense)

Explanation- Straight line Method-

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

=($240000-$60000)/4 years

=$180000/4 years

= $45000

Annual depreciation expense = ($45000*9 months)/12 months

= 33750

Answer- 2)-Journal entry for current year depreciation-

DATE	ACCOUNTS TITLES & EXPLANATION	DEBIT	CREDIT
		$	$
Dec-31	Depreciation expense	36000
	Accumulated depreciation		36000
	(Being entry recorded for depreciation expense)

Explanation- Unit of production method:-Annual depreciation expense per unit-

=Cost – salvage /Total units

=($240000-$60000)/60000 units

=$3 per unit

Depreciation expense for first year= Depreciation expense per unit*Units produced

=$3 per unit*12000 units

= $36000

3)- Journal entry for current year depreciation=

DATE	ACCOUNTS TITLES & EXPLANATION	DEBIT	CREDIT
		$	$
Dec-31	Depreciation expense	90000
	Accumulated depreciation		90000
	(Being entry recorded for depreciation expense)

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 = 1/4 = 0.25 = 25%
Double Declining Balance Rate = 25%*2 = 50%

Depreciation for First Year = $240000 *50% = ($120000*9 months)/12 months

= $90000