Question

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Ramirez Company installs a computerized manufacturing machine in its factory at the beginning of the year at a cost of $44,200. The machine's useful life is estimated at 10 years, or 392,000 units of product, with a $5,000 salvage value. During its second year, the machine produces 33,200 units of product. Exercise 8-4 Straight-line depreciation LO P1 Determine the machine's second-year depreciation and year end book value under the straight-line method. Straight Line Depreciation Choose Numerator: Choose Denominator: Annual Depreciation Expense + Depreciation expense 0 Year 2 Depreciation Year end book value (Year 2)

Answer 1

Cost minus salvage value = $44,200 - $5,000

= $39,200

Straight line depreciation expense

Choose Numerator	/	Choose denominator	=	Annual depreciation expense
Cost minus salvage value	/	Years	=	Annual depreciation expense
$39,200	/	10	=	$3,920
Year 2 Depreciation		$3,920
Year end book value (Year 2)		$40,280

Year end book value (Year 2) = $44,200 - $3,920

= $40,280

Units of production method

	Choose Numerator	/	Choose denominator	=	Annual depreciation expense
	Cost minus salvage vaue	/	Total units of production	=	Depreciation expense per unit
	$39,200	/	392,000	=	$0.10
Year	Annual Production (Units)		Depreciation expense
2	33,200		$3,320

Depreciation expense = 33,200 * $0.10

= $3,320

Double declining balance method

	Choose factors	*	Choose factors (%)	=	Annual depreciation expense
	Beginning book value	*	Double the straight line rate	=	Depreciation expense
First year's depreciation	$44,200	*	20%	=	$8,840
Second Year's depreciation	$35,360	*	20%	=	$7,072

Double the straight line rate = (100/10) * 2

= 20%

Second Year's depreciation

Beginning book value = $44,200 - $8,840

= $35,360