Question

On September 1, 2011, a company purchased a weaving machine for $239,800. The machine has an estimated useful life of 8 years and an estimated residual value of $17,800. Additionally, it is estimated that the machine would produce 740,000 bolts of woven fabric over its useful life. The company ended up selling the machine in 2018 after 1 month of use. The following budgeted and actual activity levels were provided to support your work: Year 2011 2012 2013 2014 2015 2016 2017 2018 2019 total Budgeted Bolts Budgeted cumulative 20,000 20,000 100,000 120,000 100,000 220,000 100,000 320,000 100,000 420,000 85,000 505,000 85,000 590,000 85,000 675,000 65,000 740,000 740,000 Actual Bolts actual cumulative 35,000 35,000 115,000 150,000 116,000 266,000 119,000 385,000 120,000 505,000 117,000 622,000 112,000 734,000 9,000 743,000 n.a. 743,000

Answer 1

Answer is C 3 Explanation: i) Statement is false. The book value will be higher in 2018 and hence there will be loss on disposal ii) Statement is true. Depreciation as per straight line method and units of production will same over the life of asset Straight line charges depreciation based on life of asset and units of production based on units produced iii) Statement is false. Net income will be lower as per units of production method Deprecation - SLM Cost of asset Salvage value Depreciable cost Life of asset Depreciation Depreciation for 4 months $239,800 $17,800 $222,000 8 $27,750 $9,250 Depreciation - UOP Depreciable cost Total budgeted activity Depreciation rate Depreciation for 2011 $222,000 a 740,000 b $0.30 a/b $10,500 iv) Statement is false. Depreciation rate is calculated based on budgeted units but charged based on actual production