Question

Required information [The following information applies to the questions displayed below.) Ramirez Company installs a computerized manufacturing machine in its factory at the beginning of the year at a cost of $49,000. The machine's useful life is estimated at 10 years, or 400,000 units of product, with a $9,000 salvage value. During its second year, the machine produces 34,000 units of product. 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

The Straight line method provides for an equal amount of deprication expense for each year's of assets useful life.The annual deprication is computed as follows:

[Cost of asset - Estimated residual or salvage value]/Estimated useful life of asset

Computation of Year 2 deprication and year end book value using straight line deprication: Numerator / Denominator = Annual Deprication Cost-estimated salvage value / Estimated useful life = Deprication expense 49,000 - 9,000 / 10 = 4,000 Year(2) deprication Year end book value(Year 2) 4,000 41,000

Book value is the cost of an asset minus its accumulated deprication(Accumulated deprication is the total amount of asset's costs that has been allocated to deprication expense since the asset was put into service)

Deprication(Year1) = $4,000

Deprication(Year 2) = $4,000

Accumulated deprication(End of year 2) = $8,000

Book value = $49,000 - $8,000

= $41,000

Units-of-production method:

The units-of-production-method provides for the same amount of deprication expense for each units produced or each unit of capacity used by an asset.To apply this method,the useful life of an asset ,is expressed in terms of units of productive capacity such as hours.The total deprication expense for each accounting period is then determined by multiplying the unit deprication by the number of units produced or used during the period.

Computation of machine's second year deprication using units-of-production method: Numerator Denominator Annual Deprication Cost-estimated salvage value / Estimated units of production Deprication expense per unit 49,000 - 9,000 400,000 = 0.10 Year 2 Annual production (units) Deprication expense 34,000 3,400 (0.10*34,000)