Question

16. Depreciation Methods (LO 6.2) Ohio Box Co. purchased a bundling machine on January 1, 2009, for a cost of $22,800. The machine is expected to last 5 years, or bundle 660,000 items, at which time it should have a salvage value of $3,000. A counter on the machine revealed that the machine was used at the following lev- els: 2009, 110,000 bundles; 2010, 140,000bundles; 2011, 150,000 bundles; 2012, 141,800 bundles; and 2013, 152,000 bundles.

Answer 1

a.

Straight line depreciation method = $22,800-3,000 / 5 = $3,960

b.

For depreciation expense $4,200

Units of production method = $22,800-3,000 / 660,000 = $0.03

Depreciation expense for 2010 = 140,000 * $0.03 = $4,200

Hence depreciation method used is Units of production method

c.

For depreciation expense $5,472

Double declining balance rate = 100/5*2 = 40%

Depreciation expense for 2009 = $22,800 *40% = $9,120

Depreciation expense for 2010 = $(22,800 - 9,120) * 40% = $5,472

Hence depreciation method used is double declining balance method

d.

Ending book value = $3,000 (Salvage value)

Accumulated depreciation balance = $22,800-3,000 = $19,800

e.

Double declining balance method:

Depreciation expense for year 1 = $9,120

Depreciation expense for year 2 = $5,472

Depreciation expense for year 3 = $(22,800-14,592) *40% = $3,283

Depreciation expense for year 4 = $4,925 - 3,000 = $1,925

Depreciation expense for year 5 = $0

f,

Units of production method:

Depreciation expense for year 1 = 110,000*$0.03 = $3,300

Depreciation expense for year 2 = 140,000*$0.03 = $4,200

Depreciation expense for year 3 = 150,000*$0.03 = $4,500

Depreciation expense for year 4 = 141,800*$0.03 = $4,254

Depreciation expense for year 5 = ($22,800-3,300-4,200-4,500-4,254) - 3,000 = $3,546