Question

bison blue company purchased a machine on January 1, 2016 for 240000

Qison Blue Company purchased a machine on January 1, 2016 for $240.000. It is expected to have a useful life of 5 years, or 25,000 operating hours, and a salvage value of $15,000. Required Compute the depreciation expense for the below methods and years. Each letter is independent of the other. A. Straight-line method - Years 3. Year 3 B. Units-of-production method, Years 2 and 3. Year 2_ Year 3 Year Annual Operating Hours Year 1 Year 2 Year 3 Year 4 Year 5 4,000 5,500 7,500 6,000 1.000 C. Double-Declining-balance method - Years 4 and 5. Year 4 Year 5

Answer 1

Answer A. Calculation of Depreciation - Straight Line Depreciation Depreciation for Year 3 = $45,000 Explanations Depreciation = (Cost of Machine - Salvage Value) / Useful Life = ($240,000 - $15,000) / 5 years = $45,000 each year B. Calculation of Depreciation - Units-of-Production Method Depreciation for Year 2 = 5,500 hours x $9 per hour = $49,500 Depreciation for Year 3 = 7,500 hours x $9 per hour = $67,500 Explanations Depreciation Expense per hour = (Cost of Machine - Salvage Value) / Total Operating Hours = ($240,000 - $15,000) / 25,000 hours = $9 per hour C. Calculation of Depreciation - Double-Declining-Balance Method Depreciation for Year 4 $20,736 Depreciation for Year 5 $12,442

Explanations Rate of Double Declining Method = (100% / 5) x 2 = 40% Depreciation for Year 1 = $240,000 x 40% Depreciation for Year 2 = ($240,000 - $96,000) x 40% Depreciation for Year 3 = ($240,000 - $96,000 - $57,600) x 40% Depreciation for Year 4 = ($240,000 - $96,000 - $57,600 - $34,560) x 40% Depreciation for Year 5 = ($240,000 - $96,000 - $57,600 - $34,560 - $20,736) x 40% $96,000 $57,600 $34,560 $20,736 $12,442