Question

Carla Vista Limited purchased a machine on account on April 2, 2018, at an invoice price of $389,940. On April 4, it paid $2,150 for delivery of the machine. A one-year, $3,780 insurance policy on the machine was purchased on April 5. On April 18, Carla Vista paid $8,310 for installation and testing of the machine. The machine was ready for use on April 30. Carla Vista estimates the machine's useful life will be five years or 5,949 units with a residual value of $73,190. Assume the machine produces the following numbers of units each year: 934 units in 2018; 1,325 units in 2019; 1,271 units in 2020; 1,243 units in 2021; and 1,176 units in 2022. Carla Vista has a December 31 year end. Determine the cost of the machine. Cost of the machined

Answer 1

Cost of Machine
Purchase Cost		389,940
Delivery charges		2,150
Installation		8,310
Cost of machine		400,400
(1) Straight-line method
Year	Depreciable Cost	Depreciation Expense	Accumulated Depreciation	Carrying Amount
2018	$327,210	$43,628	$43,628	$356,772
2019	$327,210	$65,442	$109,070	$291,330
2020	$327,210	$65,442	$174,512	$225,888
2021	$327,210	$65,442	$239,954	$160,446
2022	$327,210	$65,442	$305,396	$95,004
2023	$327,210	$21,814	$327,210	$73,190
(2) Double-diminishing-balance method
Year	Opening Carrying Amount	Depreciation Expense	Accumulated Depreciation	Carrying Amount
2018	$400,400	$106,773	$106,773	$293,627
2019	$293,627	$117,451	$224,224	$176,176
2020	$176,176	$70,470	$294,694	$105,706
2021	$105,706	$32,516	$327,210	$73,190
2022	$73,190	$0	$327,210	$0
2023	$0	$0	$327,210	$0
Double-diminishing-balance method causes net income to be lower in the earlier years
					(3) Units-of-production method
Depreciable Cost per Unit (327210/5949)				$ 55.00
Year	Units-of-production	Depreciation Expense	Accumulated Depreciation	Carrying Amount
2018	934	$51,370	$51,370	$349,030
2019	1325	$72,875	$72,875	$276,155
2020	1271	$69,905	$69,905	$206,250
2021	1243	$68,365	$68,365	$137,885
2022	1176	$64,680	$64,680	$73,205

Cost of Machine
Purchase Cost		389940
Delivery charges		2150
Installation		8310
Cost of machine		=SUM(C2:C4)
(1) Straight-line method
Year	Depreciable Cost	Depreciation Expense	Accumulated Depreciation	Carrying Amount
2018	=400400-73190	=B9/5*8/12	=C9	=400400-D9
2019	=400400-73190	=B10/5	=C10+D9	=E9-C10
2020	=400400-73190	=B11/5	=C11+D10	=E10-C11
2021	=400400-73190	=B12/5	=C12+D11	=E11-C12
2022	=400400-73190	=B13/5	=C13+D12	=E12-C13
2023	=400400-73190	=B14/5*4/12	=C14+D13	=E13-C14
(2) Double-diminishing-balance method
Year	Opening Carrying Amount	Depreciation Expense	Accumulated Depreciation	Carrying Amount
2018	=C5	=B18*8/12*2*20%	=C18	=B18-C18
2019	=E18	=B19*2*20%	=C19+D18	=E18-C19
2020	=E19	=B20*2*20%	=C20+D19	=E19-C20
2021	=E20	=B21-E21	=C21+D20	=E14
2022	=E21	0	=C22+D21	=E15
2023	=E22	=B23-E23	=C23+D22	=E16
Double-diminishing-balance method causes net income to be lower in the earlier years
					(3) Units-of-production method
Depreciable Cost per Unit (327210/5949)				=327210/5949
Year	Units-of-production	Depreciation Expense	Accumulated Depreciation	Carrying Amount
2018	934	=55*B30	=C30	=400400-C30
2019	1325	=55*B31	=C31	=E30-C31
2020	1271	=55*B32	=C32	=E31-C32
2021	1243	=55*B33	=C33	=E32-C33
2022	1176	=55*B34	=C34	=E33-C34