Question

Assume Purity Ice Cream Company, Inc. in Ithaca, NY, bought a new ice cream production Kit (pasteurizer/homogenizer, cooler, aging vat, freezer, and filling machine) at the beginning of the year at a cost of $152,000. The estimated useful life was four years, and the residual value was $8,000. Assume that the estimated productive life of the machine was 16,000 hours. Actual annual usage was 5,500 hours in Year 1 3,800 hours in Year 2: 3.200 hours in Year 3, and 3.500 hours in Year 4. 909 Skipped Required: 1. Complete a separate depreciation schedule for each of the alternative methods a. Straight-line b. Units-of-production c. Double-declining balance Complete this question by entering your answers in the tabs below. References Re LA Req 1B Req 1C Complete a depreciation schedule using the Straight-line method. Net Year Depreciation Expense Accumulated Depreciation Book Value At acquisition

Answer 1

Given data

Total cost of the asset (Production Kit) = $152,000

Estimated useful life of the asset = 4 years

Residual value at the end of the useful life of asset = $8,000

a. Calculation of depreciation under straight line method:

Depreciable value of the asset = Total cost of asset - Estimated salvage value of asset

= $152,000 - $8,000 = $144,000

Depreciation rate per year = (1/4) * 100 year useful life = 25%

Annual depreciation = Depreciable value x Depreciation rate per year

= $144,000 x 25% = $36,000

Year	Depreciation Expense	Accumulated Depreciation	Net Book Value
At Acquisition			$152,000
1	$36,000	$36,000	$116,000 ($152,000- $36,000)
2	$36,000	$72,000	$80,000 ($152,000 - $72,000)
3	$36,000	$108,000	$44,000 ($152,000 - $108,000)
4	$36,000	$144,000	$8,000 ($152,000 - $144,000)

b. Calculation of depreciation under units of production method:

Total estimated productive life of the machine was 16,000 hours

Actual annual usage of machine hours is Year 1 - 5,500 hours , Year 2 - 3,800 hours , Year 3 - 3,200 hours and Year 4 - 3,500 hours

Depreciation = ( Depreciable value of the asset x Annual usage of hours ) / Total estimated machine hours

Year 1 = ($144,000 x 5,500 hours) / 16,000 hours = $49,500

Year 2 = ($144,000 x 3,800 hours) / 16,000 hours = $34,200

Year 3 = ($144,000 x 3,200 hours) / 16,000 hours = $28,800

Year 4 = ($144,000 x 3,500 hours) / 16,000 hours = $31,500

Year	Depreciation Expense	Accumulated Depreciation	Net Book Value
At Acquisition			$152,000
1	$49,500	$49,500	$102,500 ($152,000 - $49,500)
2	$34,200	$99,000	$68,300 ($152,000 - $99,000)
3	$28,800	$148,500	$39,500 ($152,000 - $148,500)
4	$31,500	$198,000	$8,000 ($152,000 - $198,000)

c. Calculation of depreciation under double-declining balance method:

Cost of the asset = $152,000

Estimated residual value of the asset = $8,000

Estimated useful life of the asset = 4 years

Depreciation rate = 1/useful life * 100 = (1/4) * 100 = 25%

Double-declining balance formula = 2 x cost of the asset x Depreciation rate

Year 1 depreciation  = 2 x $152,000 x 25% = $76,000

Year 2 depreciation  = 2 x ($152,000 - $76,000) x 25% = $38,000

Year 3 depreciation  = 2 x ($152,000 - $76,000 - $38,000) x 25% = $19,000

Year 4 depreciation  = 2 x ($152,000 - $76,000 - $38,000 - $19,000) x 25% = $9,500

Year	Depreciation Expense	Accumulated Depreciation	Net Book Value
At Acquisition			$152,000
1	$76,000	$76,000	$76,000
2	$38,000	$152,000	$38,000
3	$19,000	$228,000	$19,000
4	$9,500	$304,000	$9,500