Question

Sketches Inc. purchased a machine on January 1, 2016. The cost of the machine was $27,500. Its estimated residual value was $8,500 at the end of an estimated 5-year life. The company expects to produce a total of 10,000 units. The company produced 1,050 units in 2016 and 1,500 units in 2017. Required: a. Calculate depreciation expense for 2016 and 2017 using the straight-line method. 2016 2017 Depreciation Expense Calculate the depreciation expense for 2016 and 2017 using the units-of-production method. (Do not round your intermediate calculations. Round your final answers to the nearest whole dollar.) 2016 2017 Depreciation Expense This is a numeric cell, so please enter numbers C. Calculate depreciation expense for 2016 through 2020 using the double-declining balance method. (Round your final answer to nearest dollar value.) 2016 2018 2019 2020 Depreciation Expense

Answer 1

a)

Straight line Method
Cost of machine	$ 27,500
Less: residual value	$    8,500
Depreciable value	$ 19,000
Depreciation ($19,000 / 5)	$    3,800
Depreciation expense for 2016	$    3,800
Depreciation expense for 2017	$    3,800

b)

Depreciation under DDB Method
Year - a	Net Book value, beginning of year - b	Double declained depreciation - c = b/Life of assets*2	Net book value, End of the year - d = b-c
2016	$ 27,500	$    11,000	$        16,500
2017	$ 16,500	$      6,600	$          9,900
2018	$    9,900	$      1,400	$          8,500
2019	$    8,500	$               -	$          8,500
2020	$    8,500	$               -	$          8,500

Activity Based Method
Cost of Machine	$ 27,500
Less: Salvage value	$ (8,500)
Depreciable value	$ 19,000
Total expected units	10,000
Depreciation per unit ($19,000/10,000)	$      1.90
Depreciation for 2016 ($1.90*1,050)	$    1,995
Depreciation for 2017 ($1.90*1,500)	$    2,850