Question

At the beginning of the year, Palermo Brothers, Inc., purchased a new plastic water bottle making machine at a cost of $78,000. The estimated residual value was $9,000. Assume that the estimated useful life was four years, and the estimated productive life of the machine was 690,000 units. Actual annual production was as follows:

Year	Units
1	207,000
2	151,800
3	189,750
4	141,450

Required:

1. Complete a separate depreciation schedule for each of the alternative methods.

a. Straight-line.

b. Units-of-production.

c. Double-declining-balance.

Answer 1

Answers

• Requirement [a] Straight Line Method

Working

A	Cost	$            78,000.00
B	Residual Value	$              9,000.00
C=A - B	Depreciable base	$            69,000.00
D	Life [in years]	4
E=C/D	Annual SLM depreciation	$            17,250.00

Depreciation Schedule

Year	Book Value	Depreciation expense	Ending Book Value	Accumulated Depreciation
1	$              78,000.00	$            17,250.00	$         60,750.00	$             17,250.00
2	$              60,750.00	$            17,250.00	$         43,500.00	$             34,500.00
3	$              43,500.00	$            17,250.00	$         26,250.00	$             51,750.00
4	$              26,250.00	$            17,250.00	$            9,000.00	$             69,000.00

• Requirement [b] Units of production

Working

A	Cost	$            78,000.00
B	Residual Value	$              9,000.00
C=A - B	Depreciable base	$            69,000.00
D	Usage	690,000
E = C/D	Depreciation per unit	$                       0.10

Depreciation Schedule

Year	Book Value	Usage	Depreciation expense	Ending Book Value	Accumulated Depreciation
1	$              78,000.00	207,000	$         20,700.00	$             57,300.00	$        20,700.00
2	$              57,300.00	151,800	$         15,180.00	$             42,120.00	$        35,880.00
3	$              42,120.00	189,750	$         18,975.00	$             23,145.00	$        54,855.00
4	$              23,145.00	141,450	$         14,145.00	$                9,000.00	$        69,000.00

• Requirement [c] Double Declining balance

Working

A	Cost	$            78,000.00
B	Residual Value	$              9,000.00
C=A - B	Depreciable base	$            69,000.00
D	Life [in years]	4
E=C/D	Annual SLM depreciation	$            17,250.00
F=E/C	SLM Rate	25.00%
G=F x 2	DDB Rate	50.00%

Depreciation Schedule

Year	Beginning Book Value	Depreciation rate	Depreciation expense	Ending Book Value	Accumulated Depreciation
1	$              78,000.00	50.00%	$         39,000.00	$             39,000.00	$        39,000.00
2	$              39,000.00	50.00%	$         19,500.00	$             19,500.00	$        58,500.00
3	$              19,500.00	50.00%	$            9,750.00	$                9,750.00	$        68,250.00
4	$                9,750.00		$            750.00	$                9,000.00	$        69,000.00