Question

Jensen Company purchased a new machine on October 1, 2017, at a cost of $104,000. The company estimated that the machine has a salvage value of $8,000. The machine is expected to be used for 80,000 working hours during its 8-year life.

Instructions

Compute depreciation using the following methods in the year indicated.

(a)     Straight-line for 2017 and 2018, assuming a December 31 year-end.

(b)     Declining-balance using double the straight-line rate for 2017 and 2018.

(c)     Units-of-activity for 2017, assuming machine usage was 2,900 hours. (Round depreciation per unit to the nearest cent.)

Answer 1

Working Note

Machine Usage period = 3month (1^st Oct, 2017 to 31^st Dec, 2017)

1. Straight-line for 2017 and 2018, assuming a December 31 year-end
   • Depreciation for 2017     =   ( Cost – Salvage ) / Useful Life

                                                                = (104,000 - 8,000) /8

                                                                = (96,000)/8

                                                                = 12000 Yearly

                                                                =12000*3/12 =3000

• Depreciation for 2018     =   ( Cost – Salvage ) / Useful Life

                                                                = (104,000 - 8,000) /8

                                                                = (96,000)/8

                                                                = 12000

1. Declining-balance using double the straight-line rate for 2017 and 2018

• Useful life = 8 Year
• Straight line Depreciation Percent = 1/8 = 0.125 or 12.50%
• Depreciation Rate = 2* 12.50 = 25%

• Depreciation for Year 2017 = 104,000*25%*3/12 = 6,500
• Depreciation for Year 2018 = (104,000-6500)*20% = 24,375

1. Units-of-activity for 2017, assuming machine usage was 2,900 hours. (Round depreciation per unit to the nearest cent.)

Step1 – Calculate per Unit Depreciation

• Per Unit Depreciation = (Asset Cost – Residual Value)/Useful life in units of Production

Step2 – Calculate the total depreciation of actual unit of produced

• Total Depreciation expense = Per Unit Depreciation * Unit Produce

1. Per Unit Depreciation = (104,000 - 8,000)/ 80,000 = 1.2
2. Total Depreciation expense = 1.2 * 2,900 = 3480