Question

A machine costing $216,000 with a four year life and an estimated $20,000 salvage value is installed in Luther Company's factory on January 1. The factory manager estimates the machine will produce 490,000 units of product during its life. It actually produces the following units: 121.500 in 1st year, 123.300 in 2nd year. 121.400 in 3rd year, 133,800 in 4th year. The total number of units produced by the end of year 4 exceeds the original estimate-this difference was not predicted. (The machine must not be depreciated below its estimated salvage value.) Required: Compute depreciation for each year (and total depreciation of all years combined) for the machine under each depreciation method. (Round your per unit depreciation to 2 decimal places. Round your answers to the nearest whole dollar.) Compute depreciation for each year (and total depreciation of all years combined) for the machine under each Straight-line depreciation Straight-Line Depreciation Depreciation Expense Year Total 0. Straight Line Production ProductionDDB Compute depreciation for each year (and total depreciation of all years combined) for the machine under each Units of production Units of Production Year DepuesisbieDepeinDepreentio Units per unit Expense Total Straight Line DDB> Production Compute depreciation for each year (and total depreciation of all years combined) for the machine under each Double- declining-balance. DDB Depreciation for the Period End of Period Beginning of Year Period Book Depreciation Depreciation Accumulated Expense Depreciation Book Value Rate Value 3

Answer 1

1. Straight Line Method Useful Life- 4 Years Cost $216,000 Salvage Value = $20,000 Depreciation per Year = Cost-Salvage Value Usefule Life 216,000 20,000 4 = $49,000 Straight Line Depreciation Year Deprecition Exp 49,000 49,000 49,000 49,000 196,000 1 2 4 Total

2. Units of Production Method Units of Production Depriciable | Depreciation Depreciation per Unit Year Unit Expense 121,500 123,300 121,400 133,800 0.4 0.4 0.4 0.37 Total 48,600 49,320 48,560 49,520 Refer Note Below 4 196,000 Depreciation Per Unit ($ 216,000 &20,000)/490,000 units 0.4 Note : In last Year Depreciation is restricted to $49,520 because machine can't be depreciated below its salvage Value

3. Double declining depreciation Method Straight Line Depreciation Rate = 100 % / 4years 25% 2 x Straight Line Depreciation Rate Depreciation Rate DDB Depreciation for the period End of period Beginning Depreciation Depreciation Accumulated Expense Depreciation Year Book Value Book Value Rate 216,000 108,000 54,000 27,000 50% 50% 50% 25.93% 108,000 54,000 27,000 7,000 196,000 108,000 162,000 189,000 196,000 108,000 54,000 27,000 20,000 2 4 Total Note In last year Depreciation is only $7,000 because machine can't be depreciated below its salvage value as given in question