In: Accounting
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?
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