Question

Plastic Works Corporation bought a machine at the beginning of the year at a cost of $12,000. The estimated useful life was five years, and the residual value was $2,000. Assume that the estimated productive life of the machine is 10,000 units. Expected annual production was: year 1, 3,000 units; year 2, 3,000 units; year 3, 2,000 units; year 4, 1,000 units; and year 5, 1,000 units. Required: 1. Complete a depreciation schedule for each of the alternative methods. (Enter all values as positive amount.) a. Straight-line. Balance Sheet Income Statement Depreciation Expense Year Cost Accumulated Depreciation Book Value At acquisition

Answer 1

Cost of the Machine 12000 Less : Salvage Value Depreciable Value of the Machine Life of the Machine Life of the Equipement (Units) 2000 10000 10000 Straight Line Method Annual Depreciation : Depreciable Value Life annual Depreciation :10000/5 2000 Income Statement Balance Sheet Accumulated Depreciation Depreciation Book Value Year Expenses Cost At Acquisition 12000 1 2000 12000 2000 10000 12000 8000 2 2000 4000 6000 2000 12000 6000 2000 12000 4 8000 4000 5 2000 12000 10000 2000

Units of Activity Method Annual Depreciation : Depreciable Value / Life Depreciation Per unit : 10000/10000 1.00 Balance Sheet Income Statement Accumulated Depreciation Depreciation Book Value Year Expenses Cost At Acquissition 12000 3000 12000 3000 9000 3000 2 12000 6000 6000 4000 2000 12000 8000 12000 4 1000 9000 3000 5 1000 12000 10000 2000

Double Declining balance Method Rate of Depreciation = (1/Life)*2 Depreciation Rate (1/5)*2 40.0% Double Declining balance Method Depreciation % Depreciation 40% 40% 40% Year Book Value Book value 1 12000 4800 7200 7200 2880 4320 2. 1728 2592 3 4320 2592 592 4 40% 2000 0% 5 2000 2000 0 Income Statement Depreciation Expenses Balance Sheet Accumulated Depreciation Book Value Year Cost At Acquissition 12000 12000 4800 1 4800 7200 4320 2. 2880 12000 7680 9408 2592 1728 12000 592 4 12000 10000 2000 5 0 12000 10000 2000 Straight Line Method Which Method will result in the highest net income in year 2 Does the Machine was used efficiency under this method NO |Cms LO