Question

E8-10 LO8-3 Computing Depreciation under Alternative Methods Strong Metals Inc. purchased a new stamping machine at the beginning of the year at a cost of $950,000 The estimated residual value was $50,000. Asume tha the estimated useful life was five years and the estimated productive life of the machine was 300.000 units. Actual annual production was as follows: Units 70,000 67.000 50.000 73.000 Reywined: 1. Complete a separate depreciation schedule for each of the alternative methods. Round your answers to the nearest dollar Straight line Units-of-production Double-declining balance. Method: Depreciation pee Accumulated Depreciation Net Teck Value Year Computation Al acquisition 2. Assuming that the machine was used directly in the production of one of the products that the company manufactures and sells, what factors might management consider in selecting a preferable depreciation method in conformity with the expense principle?

Answer 1

Please give positive ratings so I can keep answering. If you have any queries please comment. Thanks!

Strong Metals Inc.
Answer 1
Cost of Stamping Machine	950,000.00	A
Residual Value	50,000.00	B
Depreciable Value	900,000.00	C=A-B	Straight Line Table	Cost/Opening Book Value	Depreciation Expense	Accumulated depreciation	Net Book Value
			Year 0	950,000.00	-	-	950,000.00
Straight Line Method			Year 1	950,000.00	180,000.00	180,000.00	770,000.00
Depreciable Value	900,000.00	See C	Year 2	770,000.00	180,000.00	360,000.00	590,000.00
Life	5.00	D	Year 3	590,000.00	180,000.00	540,000.00	410,000.00
Annual depreciation	180,000.00	E=C/D	Year 4	410,000.00	180,000.00	720,000.00	230,000.00
			Year 5	230,000.00	180,000.00	900,000.00	50,000.00
			Total		900,000.00
Units of Production Method			Table	Cost/Opening Book Value	Depreciation Expense	Accumulated depreciation	Net Book Value
Depreciable Value	900,000.00	See C	Year 0	950,000.00	-	-	950,000.00
Life (Units)	300,000.00	F	Year 1	950,000.00	210,000.00	210,000.00	740,000.00
Depreciation per unit	3.00	G=C/F	Year 2	740,000.00	201,000.00	411,000.00	539,000.00
	H	I=H*G	Year 3	539,000.00	150,000.00	561,000.00	389,000.00
	Production	Depreciation	Year 4	389,000.00	219,000.00	780,000.00	170,000.00
Year 1	70,000.00	210,000.00	Year 5	170,000.00	120,000.00	900,000.00	50,000.00
Year 2	67,000.00	201,000.00	Total		900,000.00
Year 3	50,000.00	150,000.00
Year 4	73,000.00	219,000.00
Year 5	40,000.00	120,000.00
				M	N=M*L
Double Declining Method			Table	Cost/Opening Book Value	Depreciation Expense	Accumulated depreciation	Net Book Value
Cost of Stamping Machine	950,000.00	See A	Year 0	950,000.00	-	-	950,000.00
Life	5.00	See D	Year 1	950,000.00	380,000.00	380,000.00	570,000.00
Annual depreciation	190,000.00	J=A/D	Year 2	570,000.00	228,000.00	608,000.00	342,000.00
Depreciation rate	20.00%	K=J/A	Year 3	342,000.00	136,800.00	744,800.00	205,200.00
Double Depreciation %	40.00%	L=K*2	Year 4	205,200.00	82,080.00	826,880.00	123,120.00
			Year 5	123,120.00	49,248.00	876,128.00	73,872.00
			Total		876,128.00
Answer 2
If the machine is used directly in production of one of the products then company can use units of production method. It is more appropriate because then depreciation expense will be matched with the units produced exactly.