Question

Problem 8-2A Depreciation methods LO P1 A machine costing $216,000 with a four-year life and an estimated $18,000 salvage value is installed in Luther Company's factory on January 1. The factory manager estimates the machine will produce 495,000 units of product during its life. It actually produces the following units: 123,000 in 1st year, 123,100 in 2nd year, 120,400 in 3rd year, 138,500 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.) Straight-Line Depreciation Year Depreciation Expense Total $ Units of Production Depreciable Depreciation Units per unit Year Depreciation Expense 2 3 4 Total $

Answer 1

a) Straight line Depreciation

Year	Depreciation expense
1	(216000-18000/4) = 49500
2	49500
3	49500
4	49500
Total	198000

b) Unit of production

Year	Depreciable Unit	Depreciation expense per unit	Depreciation expense
1	123000	0.40	49200
2	123100	0.40	49240
3	120400	0.40	48160
4	128500	0.40	51400
Total	495000		198000

c) Double decline balance

	DDB Depreciation for the period			End of period
Year	Beginning period Book value	Depreciation rate	depreciation expense	Accumulated depreciation	Book value
1	216000	50%	108000	108000	108000
2	108000	50%	54000	162000	54000
3	54000	50%	27000	189000	27000
4	27000	50%	9000	198000	16000
Total			198000