Question

Question 2 (20 marks) Sunshine Corporation purchased a new machine on Jan 4, 2018 for $185,000 cash. The machine has a useful life of five years or of 26,000 hours. After the useful life the machine will have a residual value of $3,000. The machine was used for 3,600 hours in 2018 and 4,500 hours in 2019. I Required: 1 11 11. a Calculate the depreciation expense for 2018 and 2019 under each of the following methods: Straight-line (3 marks) Double diminishing-balance (5 marks) 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

Answer

a) Depreciation of Straight Line Method = (Purchases cost - salvage value)/5 Year

= ( 185000-3000)/5

= $ 36400

======

Depreciation expenses for the year 2018 and 2019 are same , because it is calculated on Straight Line Method , That is $ 36400

ii) Double dimishing Balance   

Depreciation Rate =( 1/useful life ) *100

= (1/5)*100 = 20 %

Double dimishing balaance method = 2* Cost of assets * Depreciation rate

Year 1 2018 = 2* 185000*20%

= 2*37000 = $ 74000

Year 2 2019 = 2*111000*20%

= 2*22200 = $ 44400

iii) Unit of Production (Year 1 2018) = ( Cost of assets - salvage value)

------------------------------------------- * Actual Unit Produced

Total units to be produced over

Estimated usefull life

= (185000-3000)/26000*2600

= $18200

Year 2019 =(185000-3000)/26000*4500

= $ 31500

b) Carrying amount as on 2019 = (185000-3000)-(36400*2)

= 182000-72800

= $109200

c) Jan 4 2018 Machine Purchases

Date	Partculars	DR	CR
Jan 4 2018	Machine Purchases	$185000
	Cash		$185000
Decmber 31 2018	Depreciation Expenses	$ 31500
	Accumulated Depreciation		$ 31500