Question

Cullumber Limited purchased a machine on account on April 2, 2018, at an invoice price of $381,780. On April 4, it paid $2,190 for delivery of the machine. A one-year, $3,730 insurance policy on the machine was purchased on April 5. On April 18, Cullumber paid $8,060 for installation and testing of the machine. The machine was ready for use on April 30.

Cullumber estimates the machine’s useful life will be five years or 6,107 units with a residual value of $79,190. Assume the machine produces the following numbers of units each year: 976 units in 2018; 1,394 units in 2019; 1,413 units in 2020; 1,225 units in 2021; and 1,099 units in 2022. Cullumber has a December 31 year end.

1.  Determine the cost of the machine.

2. Calculate the annual depreciation and total depreciation over the asset’s life using: (Round the depreciation cost per unit to the nearest cent. Round answers to 0 decimal places, e.g. 5,275.)

   - (1) Straight-line method

   - (2) Double-diminishing-balance method

   - (3) Units-of-production method

3. Which method causes net income to be lower in the early years of the asset’s life?