Question

Problem 2 In recent years, Dolittle Company has purchased three machines. Because of frequent employee turnover in the accounting department, a different accountant was in charge of selecting the depreciation method for each machine, and various methods have been used. Information concerning the machines is summarized in the table below. Useful Life (in vears) Machine Acquired Jan. 1, 2016 July 1, 2017 Nov. 1, 2017 Cost $96,000 85,000 66.000 Salvage Value $12,000 10,000 6,000 Depreciation Method Straight-line Declining-balance Units-of-activity For the declining-balance method, Dolittle Company uses the double-declining rate. For the units-of-activity method, total machine hours are expected to be 30,000. Actual hours of use in the first 3 years were: 2017, 800, 2018, 4,500; and 2019, 6,000. Instructions a) Compute the amount of accumulated depreciation on each machine at December 31, 2019. b) If machine 2 was purchased on April 1 instead of July 1, what would be the depreciation expense for this machine in 2017? In 2018?

Answer 1

Ans a Accumulated Depreciation : Machine 1 $31,500 [See Note (i)] Machine 2 $60,520 [See Note (ii)] Machine 3 $22,600 [See Note (iii)] Note (i) Straight Line Depreciation Schedule for Machine 1 Straight line depreciation = (Initial Cost-Salvage Value) / Estimated useful life Straight line depreciation = ($96000-$12000) / 8 Depreciation for the year Depreciation Year Actual Cost Depreciable Cost Useful Life Expense 1-01-2016 $96,000 12-31-2017 $84,000 / $10,500 12-31-2018 $73,500 / $10,500 12-31-2019 $63,000 / $10,500 Accumulated Depreciation Book Value $10,500 $21,000 $31,500 $85,500 $75,000 $64,500 Book Value Note (ii) Machine : 2 - Double Declining Balance Method (DDBM) = 2/Useful Life* Book Value DDB rate = 2/useful life Depreciation for the year Depreciation Accumulated Date Actual Cost Book Value DDB rate Expense Depreciation 7-01-2017 $85,000 12-31-2017 $85,000 x 0.2 = $17,000 $17,000 12-31-2018 $68,000 x 0.4 = $27,200 $44,200 12-31-2019 $40,800 x 0.4 = $16,320 $60,520 DDB rate for year ended 31st Dec 2017 - (2/5)/12x6 as the machine is used for part of the year $68,000 $40,800 $24,480

Note (iii) Machine :3 - Unit of Production depreciation Estimated 30000 hours (Initial Cost-Salvage Value) / Estimated units production - Depreciation per unit [($66000-$6000)/30000] = $ 2 per hour Depreciation for the year Number of Depreciable Per Depreciation Date Actual Cost Unit units Expense Book Value Accumulated Depreciation (c) (A) (B) | (A) - (C) $66,000 11-01-2017 12-31-2017 12-31-2018 12-31-2019 $2.00 x $2.00 x $2.00 x 800 = 4500 = 6000 = $1,600 $9,000 $12,000 $1,600 $10,600 $22,600 $64,400 $55,400 $43,400 Book Value Ans b Machine : 2 - Double Declining Balance Method (DDBM) = 2/Useful Life* Book Value DDB rate = 2/useful life Depreciation for the year Depreciation Accumulated Date Actual Cost Book Value DDB rate Expense Depreciation (A) (B) (C) 4-01-2017 $85,000 12-31-2017 $85,000 x 0.3 = $25,500 $25,500 12-31-2018 $59,500 x 0.4 = $23,800 $49,300 DDB rate for year ended 31st Dec 2017 - (2/5)/12x9 as the machine is used for part of the year Depreciation expense for 2018 is $23800 (A)-(C) $59,500 $35,700