Question

E8-9 Computing Depreciation under Alternative Methods LO8-3 Shining Cookie Company, Inc., in Murfreesboro, TN bought a new ice cream maker at the beginning of the year at a cost of $10,000. The estimated useful life was four years, and the residual value was $900. Assume that the estimated productive life of the machine was 9,100 hours. Actual annual usage was 3,640 hours in year 1; 2,730 hours in year 2; 1,820 hours in year 3; and 910 hours in year 4. Required: 1. Complete a separate depreciation schedule for each of the alternative methods. (Do not round intermediate calculations.) a. Straight-line. Year Year Net Depreciatio Accumulated Expense Depreciation Value Depre acquisition b. Units-of-production (use four decimal places for the per unit output factor). Year Depreciationccumulated Net * Book Expense Depreciation acquisition c. Double-declining-balance. Net Depreciatio Accumulated Year Expense Depreciation Value At acquisition

Answer 1

Answer-a)-

Shinning Cookie Company
Depreciation Schedule-Straight Line Balance Method
YEAR	Depreciation $	Accumulated Depreciation $	Book Value $
1	2275	2275	7725
2	2275	4550	5450
3	2275	6825	2275
4	2275	9100	0

Explanation- Straight line Method-

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

=($10000-$900)/4 years

=$9100/ 4 years

= $2275           

Depreciation expense per year = $2275

b)-

Shinning Cookie Company
Depreciation Schedule-Unit-of production method
At acquisition
YEAR	Depreciation $	Accumulated Depreciation $	Book Value $
1	3640	3640	6360
2	2730	6370	3630
3	1820	8190	910
4	910	9100	0

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

=Cost – salvage /Total machine hours

=($10000-$900)/9100 hours

=$1.00 per machine hour

Depreciation expense in year 1= Depreciation expense per hour* Hours used

=$1.00 per hour *3640 hours

=$3640

Depreciation expense in year 2= Depreciation expense per hour* Hours used

=$1.00 per hour *2730 hours

=$2730

Depreciation expense in year 3= Depreciation expense per hour* Hours used

=$1.00 per hour *1820 hours

=$1820

Depreciation expense in year 4= Depreciation expense per hour* Hours used

=$1.00 per hour *910 hours

=$910

c)-

Shinning Cookie Company
Depreciation Schedule-Double Declining Balance Method
YEAR	COST $	Depreciation Rate	Depreciation $	Accumulated Depreciation $	Book Value $
1	10000	50%	5000	5000	5000
2		50%	2500	7500	2500
3		50%	1250	8750	1250
4		50%	350	9100	900

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%
Declining Balance Rate = 2*25% = 50%