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

Requirement 1: Determine the cost of the machine as follows

Particulars	Amount
Invoice price	$325,020
Delivery costs	$1,820
Installation and testing costs	$8,150
Total cost of the machine	$334,990

Requirement 2: Compute annual and total depreciation under straight line method as follows

Year	Depreciable Cost	Depreciation Expense	Accumulated Depreciation	Carrying Account
2018	$253,530	$33,804	$33,804	$301,186
2019	$253,530	$50,706	$84,510	$250,480
2020	$253,530	$50,706	$135,216	$199,774
2021	$253,530	$50,706	$185,922	$149,068
2022	$253,530	$50,706	$236,628	$98,362
2023	$253,530	$16,902	$253,530	$81,460

Note: Annual depreciation expense

Particulars	Amount
Cost of the machine	$334,990
Deduct: Residual value	($81,460)
Depreciable cost	$253,530
÷ Useful live of machine	5
Annual depreciation expense	$50,706

Requirement 3: Compute annual and total deprecation cost under double declining balance method as follows

Year	Opening Carrying Amount	Depreciation Expense	Accumulated Depreciation	Carrying Account
2018	$334,990	$89,331	$89,331	$245,659
2019	$245,659	$98,264	$187,594	$147,396
2020	$147,396	$58,958	$246,553	$88,437
2021	$88,437	$6,977	$253,530	$81,460
2022	$81,460	$0	$253,530	$81,460
2023	$81,460	$0	$253,530	$81,460

Double declining rate = 40% (1 ÷ 5 × 2)

Requirement 3: Compute annual and total deprecation cost under units of production method as follows

Year	Units-of-Production	Depreciation Expense	Accumulated Depreciation	Carrying Account
				$334,990
2018	999	$40,040	$40,040	$294,950
2019	1,507	$60,401	$100,440	$234,550
2020	1,436	$57,555	$157,995	$176,995
2021	1,364	$54,669	$212,664	$122,326
2022	1,020	$40,866	$253,530	$81,460

Note: Depreciable cost per unit

Particulars	Amount
Cost of the machine	$334,990
Deduct: Residual value	($81,460)
Depreciable cost	$253,530
÷ Useful life in units	6326
Depreciable cost per unit	$40.08

Requirement 5: Double-declining balance method causes net income lower in the early years asset's life.

Note:

1 1 Year Carrying Account 3 2018 4 2019 5 2020 6 2021 7 2022 8 2023 Straight line Method Depreciabl Depreciation Accumulated e Cost Expense Depreciation 253530 =50706*8/12 =C3 253530 50706 =D3+C4 253530 50706 =D4+C5 253530 50706 =D5+C6 253530 50706 =D6+C7 253530 =50706*4/12 =D7+C8 =334990-D3 =334990-D4 =334990-D5 =334990-D6 =334990-D7 =334990-DS Year Opening Carrying 334990 =E12 =E13 12 2018 13 2019 14 2020 15 2021 16 2022 17 2023 Double Declining Balance Method Depreciation Accumulated Expense Depreciation =B12*40%*(8/12) =C12 =B13*40% =D12+C13 =B14*40% =D13+C14 6977 D14+15 0 =D15+C16 O =D16+C17 Carrying Account =B12-D12 =$B$12-D13 =SBS12-D14 =$B$12-D15 =$B$12-D16 =SB$12-D17 =E15 =E16 Units of production Method Depreciation Accumulated Expense Depreciation Units-of-/ Production Year 22 2018 2019 24 2020 25 2021 26 2022 =B22*40.08 =B23*40.08 =B24*40.08 =B25*40.08 =E25-81460 1436 Carrying Account =334990-D21 =E21-D22 =SES21-D23 =SES21-D24 =SE$21-D25 =E21-D26 =C22 =D22+C23 =D23+C24 =D24+C25 =D25+C26 1364 1020