Question

Part 1. A machine costing $22,000 with a five-year life and an estimated $2,000 salvage value is installed on January 1. The factory manager estimates the machine will produce 1,000 units of product during its life. It actually produces the following units: Year 1, 200; Year 2, 400; Year 3, 300; Year 4, 80; and Year 5, 30. The total number of units produced by the end of Year 5 exceeds the original estimate this difference was not predicted. (The machine must not be depreciated below its estimated salvage value.) Prepare a table with the following four-column headings: Year, Straight-Line: Units-of- ining-Balance; and then compute depreciation for each year (and total depreciation for all years combined) under each depreciation method. Straight-Line Units-of-Production Double-Declining-Balance Year 1 Year 2 Year 3 Year 4 Year 5 Total $20.000 $20.000 $20.000

Answer 1

Under Straight line method

Depreciation expense= (Original cost-Salvage value)/Estimated useful life

= ($22000-2000)/5= $4000 per year

Under Units-of-Production method

Depreciation expense per unit= (Original cost-Salvage value)/Estimated units produced

= ($22000-2000)/1000= $20 per unit

Year	Depreciation expense
Year 1	(200*$20)= $4000
Year 2	(400*$20)= 8000
Year 3	(300*$20)= 6000
Year 4	(80*$20)= 1600
Year 5	400
Total	$20000

Accumulated depreciation at the end of the Year 4= $4000+8000+6000+1600= $19600

Depreciation expense for the Year 5= Total depreciation-Accumulated depreciation at the end of the Year 4

= $20000-19600= $400

Under Double-Declining-Balance method

Depreciation rate= 100/5*2= 40%

Year	Depreciation expense	Book value at the end of the Year
Year 1	($22000*40%)= $8800	($22000-8800)= 13200
Year 2	(13200*40%)= 5280	(13200-5280)= 7920
Year 3	(7920*40%)= 3168	(7920-3168)= 4752
Year 4	(4752*40%)= 1901	(4752-1901)= 2851
Year 5	851	(2851-851)= 2000
	$20000

Accumulated depreciation at the end of the Year 4= $8800+5280+3168+1901= $19149

Depreciation for Year 5= Total depreciation-Accumulated depreciation at the end of the Year 4

= $20000-19149= $851

Year	Straight-Line	Units-of-Production	Double-Declining-Balance
Year 1	$4000	$4000	$8800
Year 2	$4000	$8000	$5280
Year 3	$4000	$6000	$3168
Year 4	$4000	$1600	$1901
Year 5	$4000	$400	$851
Total	$20000	$20000	$20000