Question

A machine costing $209,800 with a four-year life and an estimated $15,000 salvage value is installed in Luther Company’s factory on January 1. The factory manager estimates the machine will produce 487,000 units of product during its life. It actually produces the following units: 122,600 in Year 1, 123,300 in Year 2, 120,800 in Year 3, 130,300 in Year 4. The total number of units produced by the end of Year 4 exceeds the original estimate—this difference was not predicted. (The machine cannot be depreciated below its estimated salvage value.)
CULORUMLUSUNULIC W. hol predicted (the machine cannot be depreciated below its estimated salvage value.) Required: 1.42 points Compute depreciation for each year and total depreciation of all years combined for the machine under each depreciation method. (Round your per unit depreciation to 2 decimal places. Round your answers to the nearest whole dollar) Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Straight Line Jone Compute depreciation for each year (and total depreciation of all years combined) for the machine under the Double declining balance. DDB Depreciation for the Period Eedot Pere Depreciation Rate Depreciation Expense Accumulated Depreciation Book Value $ Beginning of Period Book Value $ 209,800 104,900 52 450 26 225 50 50 50 50 % % % % 104.900 52.450 26 225 13.112 Ⓡ 195 687 104.900 157.350 183.575 1 96,687 104,900 52.450 26.225 13.113 $ < Units of Production DOB < Prev 19 of 21 Next > Type here to search

Answer 1

Calculation of Depreciation:

1. Straight Line Method:

Depreciation = (Cost of the asset - Residual value) / Useful life of the asset

Cost of the Asset = $209,800

Salvage value = $15,000

Useful life of the asset = 4 Years

Depreciation = ($209,800 - $15,000) / 4 Years = $194,800 / 4 Years = $48,700

Year	Opening Value	Depreciation	Closing value
1	$209,800	$48,700	$161,400
2	$161,400	$48,700	$112,400
3	$112,400	$48,700	$63,700
4	$63,700	$48,700	$15,000

2. Units of Production Method:\

Depreciation =

Annual Depreciation = Depreciable Value × (Units produced during the year / Estimated total production )

Depreciable Value = Cost of the asset - Salvage Value = $209,800 - $15,000 = $194,800

Total Units Produced during the life = 487,000 Units

Year	Units Produced	Depreciable Value	Calculation	Depreciation Expense
1	122,600	($194,800 / 497,000) = 0.39	$194,800 * ( 122,600 / 497,000 )	$48,053
2	123,300	($194,800 / 497,000) = 0.39	$194,800 * (123,300 / 497,000)	$48,328
3	120,800	($194,800 / 497,000) = 0.39	$194,800 * (120,800 / 497,000)	$47,348
4	130,300	($194,800 / 497,000) = 0.39	$194,800 * (130,300 / 497,000)	$51,071
Total	497,000

3.Double Decling Method:

Depreciation = 2 X Cost of the asset X Depreciation rate

Cost of the Asset = $209,800

Depreciation rate = 100% / Useful Life = 100%/4 Years = 25%

Year	Calculation	Opening value	Depreciation	Closing value
1	$209,800*2*25%	$209,800	$104,900	$104,900
2	$104,900*2*25%	$104,900	$52,450	$52,450
3	$52,450*2*25%	$52,450	$26,225	$26,225
4	$26,225*2*25%	$26,225	$13,112	$13,113