Question

A machine costing $213,000 with a four-year life and an estimated $17,000 salvage value is installed in Luther Company’s factory on January 1. The factory manager estimates the machine will produce 490,000 units of product during its life. It actually produces the following units: 123,400 in 1st year, 123,100 in 2nd year, 120,000 in 3rd year, 133,500 in 4th year. The total number of units produced by the end of year 4 exceeds the original estimate—this difference was not predicted. (The machine must not be depreciated below its estimated salvage value.)

  
Required:

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.)


Complete this question by entering your answers in the tabs below. Straight Line Units of Production DDB Compute depreciation for each year (and total depreciation of all years combined) for the machine under each Straight-line depreciation. Year Straight-Line Depreciation Depreciation Expense 1 2 Total

Answer 1

Solution:

Requirement 1:

Straight-Line Depreciation
Year	Depreciation Expense
1	$             49,000
2	$             49,000
3	$             49,000
4	$             49,000
Totals	$          196,000

Depreciation Expense = (213,000-17,000)/4 years = $ 49,000 per every

Requirement 2:

Units of Production
Year	Depreciable Units(a)	Depreciation Per unit (b)	Depreciation Expense (a*b)
1	123400	$                  0.40	$             49,360
2	123100	$                  0.40	$             49,240
3	120000	$                  0.40	$             48,000
4	123500	$                  0.40	$             49,400
Totals	490000		$           196,000

1) Depreciable Units are provided in the question, 4th year depreciable units are subjected to adjustment of total 490,000 units.

Requirement 3:

	DDB Depreciation for the Period				End of Period
Year	Beginning of Period Book Value(a)	Depreciation Rate(b)		Depreciation Expense(c = a*b)	Accumulated Depreciation	Book Value(a-c)
1	$                         213,000	50	%	$         106,500	$        106,500	$   106,500
2	$                         106,500	50	%	$            53,250	$        159,750	$     53,250
3	$                            53,250	50	%	$            26,625	$        186,375	$     26,625
4	$                            26,625	50	%	$              9,625	$        196,000	$     17,000
Totals				$         196,000

1) Depreciation Rate = 1 / Useful Life * 2 = (1/4) * 2 = 50%

2) 4th year depreciation is adjusted to a limit of salvage value of $17,000.

.4th year depreciation is $ 196,000 - $ 186,375 = $ 9,625.