Cherokee Company acquired a machine on January 1, 2006, that cost $2,700 and had

Question

Cherokee Company acquired a machine on January 1, 2006, that cost $2,700 and had an estimated residual value of $200. Complete the following schedule using the three methods of depreciation: A.) straight-line, B.) units-of-production, C.) declining-balance at 200% acceleration rate for year 2007.

Method Estimated Useful Life Depreciation Accumulated depreciation
Expense for 2007 12/31/2007
A.   Straight-line 5 Years
B.   Units of Production
10,000 units (total)
Actual units 1,000 in 2006
Actual units 1,200 in 2007
C.   Double Declining 5 Years

Explanation / Answer

Straight line annual depreciation will be (2,700-200)/5= 500 per year. So expense for depreciation will be 500 per year, accumulated depreciation will be 500 at 12/31/2006 and 1,000 at 12/31/2007. Units of production will be (2700-200)/10,000= .25 per unit So depreciation expense will be 1,000* .25= 250 in 2006 and 1200*.25= 300 in 2007. Accumulated depreciation will be 250 at 12/31/2006 and 550 at 12/31/2007 Double declining balance We take 1/useful live and double it so 1/5= 20%*2= 40% a year. We depreciate the net book value down to the salvage value. 2006 depreciation expense 2,700*.40= 1,080 2007 depreciation expense (2,700-1080)*.40= 648 Accumulated depreciation at 12/31/2006 is 1,080 and at 12/31/2007 is 1,728.

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