Question

On January 1, 2014, Forge Mill Company bought a hydraulic hammering machine. The cost of the machine was $41,000. Its estimated residual value was $10,000 at the end of an estimated 10-year life. The company expects to produce a total of 20,000 units. a. Calculate depreciation expense for 2014 and 2015 using the straight-line method. 2014 2015 Depreciation Expense b. Calculate depreciation expense for 2014 and 2015 using the double-declining balance method. 2014 2015 Depreciation Expense

Answer 1

Answer

• Requirement [a]

A	Cost	$            41,000.00
B	Residual Value	$            10,000.00
C=A - B	Depreciable base	$            31,000.00
D	Life [in years]	10
E=C/D	Annual SLM depreciation	$              3,100.00

Year	Depreciation expense
2014	$              3,100.00
2015	$              3,100.00

• Requirement [b]

Year	Depreciation expense
2014	$              8,200.00
2015	$              6,560.00

A	Cost	$            41,000.00
B	Residual Value	$            10,000.00
C=A - B	Depreciable base	$            31,000.00
D	Life [in years]	10
E=C/D	Annual SLM depreciation	$              3,100.00
F=E/C	SLM Rate	10.00%
G=F x 2	DDB Rate	20.00%

Year	Beginning Book Value	Depreciation rate	Depreciation expense	Ending Book Value
1	$              41,000.00	20.00%	$            8,200.00	$             32,800.00
2	$              32,800.00	20.00%	$            6,560.00	$             26,240.00

• Requirement [c]

--Working

A	Cost	$            41,000.00
B	Residual Value	$            10,000.00
C=A - B	Depreciable base	$            31,000.00
D	Usage	20,000
E = C/D	Depreciation per …..	$                    1.550

Year	Depreciation expense	Working
2014	$              2,325	1500 units x $ 1.55
2015	$              3,023	1950 units x $ 1.55