Question

Problem 9-3A a-b Crane Limited purchased a machine on account on April 2, 2018, at an invoice price of $325,020. On April 4, it paid $1,820 for delivery of the machine. A one-year, $3,940 insurance policy on the machine was purchased on April 5. On April 18, Crane paid $8,150 for installation and testing of the machine. The machine was ready for use on April 30. Crane estimates the machine's useful life will be five years or 6,326 units with a residual value of $81,460. Assume the machine produces the following numbers of units each year: 999 units in 2018; 1,507 units in 2019; 1,436 units in 2020; 1,364 units in 2021; and 1,020 units in 2022. Crane has a December 31 year end. Determine the cost of the machine. Cost of the machine Calculate the annual depreciation and total depreciation over the asset's life using: (Round the depreciation cost per unit to the nearest cent. Round answers to 0 decimal places, e.g. 5,275.) (1) Straight-line method Year Depreciable Cost Depreciation Expense Accumulated Depreciation Carrying Amount 2018 $ $ 2019

Answer 1

Part A

Cost of the machine = 325020+1820+8150 = $334990

Part 1

Year	Depreciable cost	Depreciation expense	Accumulated depreciation	Carrying amount
2018	253530	50706	50706	284284
2020	253530	50706	101412	233578
2021	253530	50706	152118	182872
2022	253530	50706	202824	132166
2023	253530	50706	253530	81460

Depreciable cost = cost of machine – residual value = 334990-81460 = 253530

Depreciation expense = 253530/5 = 50706

Part 2

Depreciation rate = 1/ estimated life * 2 = 1/5 * 2 = 40%

Year	Opening carrying amount	Depreciation expense	Accumulated depreciation	Carrying amount
2018	334990	133996	133996	200994
2020	200994	80398	214394	120596
2021	120596	39136	253530	81460
2022	81460	0	253530	81460
2023	81460	0	253530	81460

Part 3

Depreciation per unit = (334990-81460)/6326 = 40.08

Year	Units of production	Depreciation expense	Accumulated depreciation	Carrying amount
2018	999	40040	40040	294950
2020	1507	60401	100441	234549
2021	1436	57555	157996	176995
2022	1364	54669	212665	122325
2023	1020	40865	253530	81460

Part B

Double declining method

As in double declining method, the depreciation expense is high in the early years and due high depreciation expenses, net income decreases.