Question

In: Accounting

please answer all Crane Limited purchased a machine on account on April 2, 2018, at an...

please answer all

Crane Limited purchased a machine on account on April 2, 2018, at an invoice price of $360,090. On April 4, it paid $1,850 for delivery of the machine. A one-year, $4,250 insurance policy on the machine was purchased on April 5. On April 18, Crane paid $8,280 for installation and testing of the machine. The machine was ready for use on April 30.

Crane estimates the machine’s useful life will be five years or 6,018 units with a residual value of $85,700. Assume the machine produces the following numbers of units each year: 859 units in 2018; 1,504 units in 2019; 1,312 units in 2020; 1,267 units in 2021; and 1,076 units in 2022. Crane has a December 31 year end.

1. determine the cost of the machine

2. calculate

Depreciable Cost Depreciation Expense Accumulated Depreciation Carrying Amount

using a. straight line method, b. double diminishing method, c. units of production method

3. Which method causes net income to be lower in the early years of the asset’s life?

Solutions

Expert Solution

a. Computation of Cost of machine
$
Invoice price $3,60,090.00
Delivery charges $1,850.00
Installation and testing $8,280.00
Total cost of machine $3,70,220.00
Straight line method:
Year Depreciable Cost (a) Depreciation Expense
(b)
Accumulated Depreciation
(c )
Carrying Amount
(a-c)
2018 $2,84,520 $56,904 $56,904 $2,27,616
2019 $2,84,520 $56,904 $1,13,808 $1,70,712
2020 $2,84,520 $56,904 $1,70,712 $1,13,808
2021 $2,84,520 $56,904 $2,27,616 $56,904
2022 $2,84,520 $56,904 $2,84,520 $0
Note
Depreciable cost = Cost of Machine - Residual Value
= 370220 - 85700=
Depreciation Expense = 284520/5 =$56904
Double-Diminishing Balance method:
Year Opening Carrying Amount
(a)
Depreciation Expense
(b)
Accumulated Depreciation
( C)
Carrying Amount
(a-b)
2018 $3,70,220 $1,48,088 $1,48,088 $2,22,132
2019 $2,22,132 $88,853 $2,36,941 $1,33,279
2020 $1,33,279 $53,312 $2,90,252 $79,968
2021 $79,968 $31,987 $3,22,239 $47,981
2022 $47,981 $19,192 $3,41,432 $28,788
Note:-
depreciation Rate = 2 X 1/5= 40%
Units-of-production method:
Year Depreciable Cost (a) Depreciation Expense
(b)
Accumulated Depreciation
( C)
Carrying Amount
(a-c)
2018 $2,84,520 =284520/6018*859=40612 $40,612 $2,43,908
2019 $2,84,520 =284520/6018*1504=71106 $1,11,718 $1,72,802
2020 $2,84,520 =284520/6018*1312=62029 $1,73,747 $1,10,773
2021 $2,84,520 =284520/6018*1267=59901 $2,33,648 $50,872
2022 $2,84,520 =284520/6018*1076= 50871 $2,84,519 $1

3. Double diminishing Value method


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