Question

Cullumber Ltd. purchased a new machine on April 4, 2014, at a cost of $179,200. The company estimated that the machine would have a residual value of $16,000. The machine is expected to be used for 10,200 working hours during its four-year life. Actual machine usage was 1,400 hours in 2014; 2,200 hours in 2015; 2,400 hours in 2016; 2,200 hours in 2017; and 2,000 hours in 2018. Cullumber has a December 31 year end.

Calculate depreciation for the machine under each of the following methods: (Round expense per unit to 2 decimal places, e.g. 2.75 and final answers to 0 decimal places, e.g. 5,275.) (1) Straight-line for 2014 through to 2018. 2014 expense $enter a dollar amount 2015 expense $enter a dollar amount 2016 expense $enter a dollar amount 2017 expense $enter a dollar amount 2018 expense $enter a dollar amount (2) Diminishing-balance using double the straight-line rate for 2014 through to 2018. 2014 expense $enter a dollar amount 2015 expense $enter a dollar amount 2016 expense $enter a dollar amount 2017 expense $enter a dollar amount 2018 expense $enter a dollar amount (3) Units-of-production for 2014 through to 2018. 2014 expense $enter a dollar amount 2015 expense $enter a dollar amount 2016 expense $enter a dollar amount 2017 expense $enter a dollar amount 2018 expense $enter a dollar amount

Which method results in the highest depreciation expense over the life of the asset? Highest net income? Highest cash flow? select a method that results in the highest depreciation expense over the life of the asset Straight-line methodDiminishing-balance methodUnits-of-production methodAll three methods are the sameNo Impact Which method results in the highest net income? select a method that results in the highest net income Straight-line methodDiminishing-balance methodUnits-of-production methodAll three methods are the sameNo Impact Which method results in the highest cash flow?

Answer 1

Straight-Line Depreciation Schedule
		Depreciation for the Year
	Asset	Depreciable		Useful Life		Depreciation	Accumulated	Book
Date	Cost	Cost				Expense	Depreciation	Value
4/1/2014	$179,200.00
12/31/2014		$163,200.00	/	4	=	$30,600.00	$30,600.00	$148,600.00
12/31/2015		$163,200.00	/	4	=	$40,800.00	$71,400.00	$107,800.00
12/31/2016		$163,200.00	/	4	=	$40,800.00	$112,200.00	$67,000.00
12/31/2017		$163,200.00	/	4	=	$40,800.00	$153,000.00	$26,200.00
3/4/2018		$163,200.00	/	4	=	$10,200.00	$163,200.00	$16,000.00
Depreciable cost =179200-16000
Depreciation per Unit = (Original Cost- Salvage Value)/ Estimated Life
=(179200-16000)/10200 Hour=$16
Units-of-Production Depreciation Schedule
		Depreciation for the Year
	Asset	Depreciation		Number of		Depreciation	Accumulated	Book
Date	Cost	Per Unit		Mileage		Expense	Depreciation	Value
4/1/2014	$179,200.00
12/31/2014		16	x	1400	=	$22,400	$22,400	$156,800.00
12/31/2015		16	x	2200	=	$35,200	$57,600	$121,600.00
12/31/2016		16	x	2400	=	$38,400	$96,000	$83,200.00
12/31/2017		16	x	2200	=	$35,200	$131,200	$48,000.00
3/4/2018		16	x	2000	=	$32,000	$163,200	$16,000.00
Double-Declining-Balance Depreciation Schedule
		Depreciation for the Year
	Asset	Book		DDB		Depreciation	Accumulated	Book
Date	Cost	Value		Rate		Expense	Depreciation	Value
4/1/2014	$179,200.00
12/31/2014		$99,000	x	50%	=	$37,125	$37,125	$142,075
12/31/2015		$142,075	x	50%	=	$71,037.50	$108,163	$71,038
12/31/2016		$71,038	x	50%	=	$35,519	$143,681	$35,519
12/31/2017		$35,519	x	50%	=	$17,759	$161,441	$17,759
3/4/2018		$17,759	x		=	$1,759	$163,200	$16,000
DDB Rate= 1/ Estimated Life X 2= 1/4X2= 50%