Question

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Question 2 of 2 - 10 E View Policies Current Attempt in Progress Amachine that produces cellphone components is purchased on January 1, 2020, for $182,000. It is expected to have a useful life of four years and a residual value of $14,000. The machine is expected to produce a total of 200,000 components during its life, distributed as follows: 40,000 in 2020, 50,000 in 2021,60,000 in 2022, and 50,000 in 2023. The company has a December 31 year end. Calculate the amount of depreciation to be charged each year, using each of the following methods: i. Straight-line method Straight-line method depreciation $ per year ii Units-of-production method (Round depreciation per unit to 2 decimal places, eg, 15.25 and final answer to decimal places, eg. 125.) Units-of-production method depreciation $ Year 2020 $ 2021 $ 2022 $ 2023 $ füi. Double-diminishing-balance method Rate Year 2020 $ 2021 $ 2022 $ 20235 eTextbook and Media Which method results in the highest depreciation expense: i. during the first two years? ii. over all four years?

Answer 1

Answer:

i. Straight line method Annual depreciation - Depreciable value / Useful life of assets = $ 168,000 / 4 years = $ 42,000 Straight line method depreciation $ 42,000 per year Asset Purchased on Cost of asset Residual value Useful life Total production 2020 2021 2022 2023 Depreciable value Machine January 1, 2020 $ 182,000 $ 14,000 4 Years 200,000 units 40,000 units 50,000 units 60.000 units 50,000 units S 168,000 ii. Unit-of production method Depreciation per unit = Depreciable value / Total capacity = $ 168,000 / 200,000 units = $ 0.84 per unit Depreciation expense = Number of unit produced x Depreciation per unit Depreciable value = Cost of asset - Salvage value Depreciable value = $ 182,000 - $ 14,000 Depreciable value = $ 168,000 Unit-of production method depreciation Year Depreciation 2020 33,600 [40,000 x $ 0.84) 2021 $ 42,000 (50,000 x $ 0.84] 2022 $ [60,000 x $ 0.84] 2023 $ 50,400 [50,000 x $ 0.84) 42,000 iii. Double diminishing balance method [(1/useful life of asset) x 2] Depreciation rate = (1/4 years) x 2 = 50% Year Depreciation 2020 91,000 2021 $ 45,500 2022 $ 22,750 2023 $ 8,750

Year 2020 2021 2022 2023 Opening carrying Depreciation expense Accumulated depreciation Carrying amount amount $ 182,000 $ 91,000 $ 91,000 $ 91,000 $ 91,000 $ 45,500 $ 136,500 $ 45,500 $ 45,500 $ 22,750 $ 159,250 $ 22,750 $ 22,750 $ 8,750 $ 168,000 $ 14,000 Depreciation for 2020 = $ 182,000 x 50% = $ 91,000 Depreciation for 2021 = $ 91,000 x 50% = $ 45,500 Depreciation for 2022 = $ 45,500 x 50% = $ 22,750 Depreciation for 2023 = $ 22,750 - $ 14,000 = $ 8,750 Carrying amount = Cost of asset - Accumulated depreciation Opening carrying amount is previous year's closing carrying amount Which method results in highest depreciation expense? i. During the first 2 years Double diminishing balance method Under double diminishing balance method, total depreciation for first two years is $ 136,500 which is highest depreciation than other methods. ii. Over all 4 years All are the same Total depreciation is same in all methods. Which is accumulated depreciation at the end of fourth year is $ 168,000 under all methods