Question

7-5

A machine costing $211,400 with a four-year life and an estimated $15,000 salvage value is installed in Luther Company’s factory on January 1. The factory manager estimates the machine will produce 491,000 units of product during its life. It actually produces the following units: 121,600 in 1st year, 123,900 in 2nd year, 120,800 in 3rd year, 134,700 in 4th year. The total number of units produced by the end of year 4 exceeds the original estimate—this difference was not predicted. (The machine must not be depreciated below its estimated salvage value.)

  
Required:

Compute depreciation for each year (and total depreciation of all years combined) for the machine under each depreciation method. (Round your per unit depreciation to 2 decimal places. Round your answers to the nearest whole dollar.)

Compute depreciation for each year (and total depreciation of all years combined) for the machine under each Straight-line depreciation.

	Straight-Line Depreciation Year Depreciation Expense 1 $211,400 2 3 4 Total $211,400

Compute depreciation for each year (and total depreciation of all years combined) for the machine under each Units of production.

	Units of Production Year Depreciable Units Depreciation per unit Depreciation Expense 1 2 3 4

Compute depreciation for each year (and total depreciation of all years combined) for the machine under each Double-declining-balance.

	DDB Depreciation for the Period End of Period Year Beginning of Period Book Value Depreciation Rate Depreciation Expense Accumulated Depreciation Book Value 1 % $0 2 % 0 3 % 0 4 % 0 $0

Answer 1

Straight line Method
A	Cost	$     2,11,400.00
B	Residual Value	$        15,000.00
C=A - B	Depreciable base	$     1,96,400.00
D	Life [in years left ]	4
E=C/D	Annual SLM depreciation	$        49,100.00

Straight-Line Depreciation
Year	Depreciation Expense
1	$   49,100.00
2	$   49,100.00
3	$   49,100.00
4	$   49,100.00
Total	$1,96,400.00

Units of Production method
A	Cost	$     2,11,400.00
B	Residual Value	$        15,000.00
C=A - B	Depreciable base	$     1,96,400.00
D	Usage in units(in Units)	491000
E	Depreciation per Unit	$                   0.40

Units of Production
Year	Depreciable Units	Depreciation per unit	Depreciation Expense
1	121600	$     0.40	$   48,640.00
2	123900	$     0.40	$   49,560.00
3	120800	$     0.40	$   48,320.00
4	134700	$     0.40	$   49,880.00
			$1,96,400.00

Double declining Method
A	Cost	$     2,11,400.00
B	Residual Value	$        15,000.00
C=A - B	Depreciable base	$     1,96,400.00
D	Life [in years]	4
E=C/D	Annual SLM depreciation	$        49,100.00
F=E/C	SLM Rate	25.00%
G=F x 2	DDB Rate	50.00%

	DDB Depreciation for the Period				End of Period
Year	Beginning of Period Book Value	Depreciation Rate		Depreciation Expense	Accumulated Depreciation	Book Value
1	$ 2,11,400.00	50%		$ 1,05,700.00	$ 1,05,700.00	$ 1,05,700.00
2	$ 1,05,700.00	50%		$      52,850.00	$ 1,58,550.00	$      52,850.00
3	$      52,850.00	50%		$      26,425.00	$ 1,84,975.00	$      26,425.00
4	$      26,425.00	50%		$      11,425.00	$ 1,96,400.00	$      15,000.00
				$ 1,96,400.00