Question

Question 2 (20 marks) Sunshine Corporation purchased a new machine on Jan 4, 2018 for $215,000 cash. The machine has a useful life of ten years or of 30,000 hours. After the useful life the machine will have a residual value of $2,000. The machine was used for 4,000 hours in 2018 and 5,500 hours in 2019. Required: a. Calculate the depreciation expense for 2018 and 2019 under each of the following methods: i. Straight-line (3 marks) ii. Double diminishing-balance (5 marks) iii. Units-of-production (5 marks) b. Calculate the carrying amount at the end of 2019 for the machine when the company is using the Straight-line depreciation method. (3 marks) c. Record the journal entry for the cash purchase of the machine on Jan 4, 2018 and for its depreciation expense for the year ended December 31, 2019 under the units-of-production method. (4 marks)

Answer 1

Part A
Straight Line method
Year	Cost of asset	Depreciable cost	Depreciation rate	Depreciation expenses	Accumulated Depreciation	Book value
At Acquistion	$215,000					$215,000
2018		$213,000	10.00%	$21,300	$21,300	$193,700
2019		$213,000	10.00%	$21,300	$42,600	$172,400
Double Declining balance
Date	Cost of asset	Book Value	DDB Rate	Depreciation expenses	Accumulated Depreciation	Book value
At Acquistion	$215,000					$215,000
2018		$215,000	20.00%	$43,000	$43,000	$172,000
2019		$172,000	20.00%	$34,400	$77,400	$137,600
Units of Production
Date	Depreciable cost	Depreciation per hour	No. of hours	Depreciation expenses	Accumulated Depreciation	Book value
At Acquistion						$215,000
2018	$213,000	$7.10	4000	$28,400	$28,400	$186,600
2019	$213,000	$7.10	5500	$39,050	$67,450	$147,550
Part B(Also calculated above)
Carrying Amount at the end of 2019 under straight line method =$215,000 - $21,300 - $21,300 =$172,400
Part C
The Depreciation expense in 2019 under units ofproduction method as calculated in Part a is $39,050
Date	Account explanation	Debit	Credit
Jan 4,2018	Machine	$                     215,000
	Cash		$                           215,000
	(to machine purchased in cash)
Dec 31,2019	Depreciation expense	$                       39,050
	Accumulated Depreciation-Machine		$                             39,050
	(to depreciation charged for 2019)