Question

Question 16 Whispering Winds Corp. purchased a new machine on October 1, 2022 at a cost of $353,600. The company estimated that the machine has a salvage value of $27,200. The machine is expected to be used for 272,000 working hours during its 8-year life. Compute depreciation using the following methods in the year indicated. Straight-line for 2022 and 2023, assuming a December 31 year-end. (Round answers to o decimal place, e.g. 1520.) 2022 Straight-line method Declining-balance using double the straight-line rate for 2022 and 2023. 2022 2023 Declining balance method Units-of-activity for 2022, assuming machine usage was 9,860 hours. (Round depreciation per unit to the nearest cent.) Units-of-activity method 2022

Answer 1

a	Calculation of Depreciation expense to be recognized under Straight Line Depreciation Method :-
		Annual Depreciation Expense	=	Depreciable Amount
				Useful Life
		Depreciable Amount	=	Cost - Salvage value
		Cost	=	$353,600
		Salvage value (residual value)	=	$27,200
		Useful life	=	8	years
		Depreciable Amount	=	$353,600	-	$27,200
			=	$326,400
		Annual Depreciation Expense	=	$326,400
				8 years
			=	$40,800	per year
		Choose Numerator	/	Choose Denominator	=	Annual Depreciation
		Depreciable Amount	/	Useful life	=	Annual Depreciation
		$326,400	/	8	=	$                            40,800
	In 2022, From 1st October to 31st December = 3 months i.e. 3/12 = 1/4 is Fraction of year
	Year	Annual Depreciation	×	Fraction of Year	=	Depreciation Expense
	2022	$40,800	×	1/4	=	$                            10,200
	2023	$40,800	×	1	=	$                            40,800
	Year	Depreciation Expense
	2022	$                              10,200
	2023	$                              40,800
b	Calculation of Depreciation expense to be recognized under Double Declining Balance Method of Depreciation :-
	Double Declining Balance Depreciation		=	2 × Straight line Depreciation rate × Book value at the beginning of the year
		Cost	=	$                      353,600
	Less: Salvage value		=	$                        27,200
	Depreciable Amount		=	$                      326,400
	Useful life		=	8	years
	Straight line Depreciation Rate		=	100
				8
			=	12.50%
	Double Declining Balance Depreciation Rate		=	2 * 12.50 =25%
	Purchase Date		=	1st Oct
	2022 Depreciation Period (Oct to Dec)		=	3 months	=	3/12 =1/4
	2022 Depreciation Period in fraction of year		=	1/4

Annual Period		Depreciation for the period					End of Period
	Beginning of Period Book Value	Depreciation Rate		Partial Year		Depreciation Expense	Accumulated Depreciation	Book Value
a	b	c		d		e = b*c*d	f	g =b-e
2022	353,600	25.00%		1/4		$                             22,100	$             22,100	$     331,500
2023	331,500	25.00%		1		$                             82,875	$           104,975	$     248,625

	Year	Depreciation Expense
	2022	$                               22,100
	2023	$                               82,875
c. Units of Activity Method of Depreciation
		Cost	=	$                      353,600
	Less: Salvage value		=	$                        27,200
	Depreciable Amount		=	$                      326,400
	Useful life		=	8 years
	Machine life in Hours		=	272000
	Depreciation expense per hour		=	Depreciable Amount
				Machine life in Hours
			=	$326,400
				272000
	Depreciation expense per hour		=	$1.20
a	Depreciation expense per hour		=	$1.20
b	Machine hours usage in 2022		=	9860
c	Depreciation expense for 2022 (a*b)		=	$11,832

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