Question

Torge Company bought a machine for $99,000 cash. The estimated useful life was five years and the estimated residual value was $6,000. Assume that the estimated useful life in productive units is 201,000. Units actually produced were 53,600 in year 1 and 60,300 in year 2 Required: 1. Determine the appropriate amounts to complete the following schedule. (Do not round intermediate calculations.) Depreciation Expense for Book Value at the End of Method of Depreciation Year 2 Year 2 Year 1 Year 1 Straight-line Units-of-production Double-declining-balance

Answer 1

Depreciation Expense for Method of Depreciation Year 1 Year 2 Straight - line $ 18,600 $ 18,600 $ Units-of-production $ 24,800 $ 27,900 $ Double-Decling-balance $ 39,600 $ 23,760 $ Book value at the End of Year 1 Year 2 80,400 $ 61,800 74,200 $ 46,300 59,400 $ 35,640 Working Notes : Machine Cost = $99,000 Residual value = $6,000 Useful life = 5 Years Straight Line Depreciation = (Cost of machine - residual value)/Useful life = ($99,000-$6,000)/5 = $18,600 Book value at the end of Year 1 = $99,000-$18,600 = $80,400 Book value at the end of Year 2 = $80,400-$18,600 = $61,800

Units of production Depreciable cost = Cost of machine - Residual value = $99,000-$6,000 = $93,000 Depreciable cost per unit = Depreciable cost / Productive units = $93,000/201,000 = $0.46 Depreciation for year 1 = 53,600*$0.46 = $24.800 Book value at the year 1 = $99,000-$24,800 = $74,200 Depreciation for Year 2 = 60,300*$0.46 = $27,900 Book value at the year 2 = $74,200 - $27,900 = $46,300 Double declining balance method Depreciation rate = 1/5*100*2 = 40% Depreciation for Year 1 = $99,000*40% = $39,600 Book value for year 1 = $99,000 - $39,600 = $59,400 Depreciation for Year 2 = $59,400*40% = $23,760 Book value for year 2 = $59,400 - $23,760 = $35,640