Question

KLM Company purchased a Mixer Machine on January 2, 2008, for $14,500. The Mixer was expected to have a useful life of five (5) years and a residual value of $1,000. The company engineers estimated that the Mixer would have a useful life of 7,500 hours. Itwas used 1,500 hours in 2008, 2625 hours in 2009, 2250 hours in 2010, 750 hours in 2011, and 375 hours in 2012.KLM Company's year end is December 31.

Required

1.Compute the depreciation expense and carrying value for 2008 to 2012, using thefollowing methods (a) Straight-Line, (b) Production, (c)Double-Declining-Balance.

2.Prepare the adjusting entry to record the depreciation for 2008 that you that you calculated in1(a), 1(b), and 1(c). (Three separate independententries.)

3.Show Accumulated Depreciation Account (in T Account form) using all three (3)methods mentioned in 2 from 2008 to 2012. (Three separate independentaccounts.)

4.Show the Balance Sheet presentation for the Mixer Machine after the entries in 2,under all three methods, on December 31, 2008. (Three separate independentpresentations.)

5.Show the Balance Sheet presentation for the Mixer Machine after the entries in 2,under all three methods, on December 31, 2012. (Three separate independentpresentations.)

6.What conclusions can you draw from the patterns of yearly depreciation

Answer 1

Ans 1
Straight Line methos		in $
(14500-1000)/5		2700
Year	Basis B	Dep expenses D		Acc Dep	Carrying value B-D
2008	14500	2700		2700	11800
2009	11800	2700		5400	9100
2010	9100	2700		8100	6400
2011	6400	2700		10800	3700
2012	3700	2700		13500	1000
Year	Dep expenses D	Carrying value B-D
2008	2700	11800
2009	2700	9100
2010	2700	6400
2011	2700	3700
2012	2700	1000
b) Production Method
Rate per hour=(14500-1000)/7500		1.80
working
Year	Basis B	No. of machine hours N	Rate R	Dep expenses D=N*R	Acc Dep	Carrying value B-D
2008	14500	1500	1.80	2700	2700	11800
2009	11800	2625	1.80	4725	7425	7075
2010	7075	2250	1.80	4050	11475	3025
2011	3025	750	1.80	1350	12825	1675
2012	1675	375	1.80	675	13500	1000
answer
Year	Dep expenses D=N*R	Carrying value B-D
2008	2700	11800
2009	4725	7075
2010	4050	3025
2011	1350	1675
2012	675	1000
ans c DDB method
DDB rate=1/5*200%		40%
Year	Basis B	Dep rate R		Dep expenses D=N*R	Acc Dep	Carrying value B-D
2008	14500	40%		5800	5800	8700
2009	8700	40%		3480	9280	5220
2010	5220	40%		2088	11368	3132
2011	3132	40%		1252.8	12620.8	1879.2
2012	1879.2	40%		879.2	13500	1000
				(depreciation in last year would be 1879.2-1000)
answer
Year	Dep expenses D=N*R	Carrying value B-D
2008	5800	8700
2009	3480	5220
2010	2088	3132
2011	1253	1879
2012	879	1000
ans 2
	Accounts title	Dr	Cr
2a	Depreciation expenses	2700
	Accumulated Depreciation-Mixer Machinery		2700
2b	Depreciation expenses	2700
	Accumulated Depreciation-Mixer Machinery		2700
2c	Depreciation expenses	5800
	Accumulated Depreciation-Mixer Machinery		5800
ans 3
3a	Accumulated Depreciation-Mixer Machinery
		2008	Depreciation expenses	2700
		2009	Depreciation expenses	2700
		2010	Depreciation expenses	2700
		2011	Depreciation expenses	2700
		2012	Depreciation expenses	2700
			ending balance	13500
3b	Accumulated Depreciation-Mixer Machinery
		2008	Depreciation expenses	2700
		2009	Depreciation expenses	4725
		2010	Depreciation expenses	4050
		2011	Depreciation expenses	1350
		2012	Depreciation expenses	675
			ending balance	13500
3c	Accumulated Depreciation-Mixer Machinery
		2008	Depreciation expenses	5800
		2009	Depreciation expenses	3480
		2010	Depreciation expenses	2088
		2011	Depreciation expenses	1253
		2012	Depreciation expenses	879
			ending balance	13500
ans 4
	Balance sheet
	Property Plant & equipment
	Mixer Machinery	14500
	Less:Accumulated Depreciation-Mixer Machinery	2700	11800
Production method
	Balance sheet
	Property Plant & equipment
	Mixer Machinery	14500
	Less:Accumulated Depreciation-Mixer Machinery	2700	11800
DDb rate
	Balance sheet
	Property Plant & equipment
	Mixer Machinery	14500
	Less:Accumulated Depreciation-Mixer Machinery	5800	8700
ans 5
	Balance sheet
	Property Plant & equipment
	Mixer Machinery	14500
	Less:Accumulated Depreciation-Mixer Machinery	13500	1000
Production method
	Balance sheet
	Property Plant & equipment
	Mixer Machinery	14500
	Less:Accumulated Depreciation-Mixer Machinery	13500	1000
DDb rate
	Balance sheet
	Property Plant & equipment
	Mixer Machinery	14500
	Less:Accumulated Depreciation-Mixer Machinery	13500	1000