1. On January 1, Hobart Mfg. Co. purchased a drill press at a cost of $36,000. T
ID: 2381895 • Letter: 1
Question
1. On January 1, Hobart Mfg. Co. purchased a drill press at a cost of $36,000. The drill press is expected to last 10 years and has a residual value of $6,000. During its 10-year life, the equipment is expected to produce 500,000 units of product. In year one 25,000 units were produced. In year two 84,000 units were produced. What is the amount of depreciation for year one and year two and the book value of the drill press at December 31, year one and year two, assuming the double declining balance method is used:
Depreciation year one - $7,200
Depreciation year two - : $7,200
Book value year one - $28,800
Book value year two - $21,600
Depreciation year one - $3,600
Depreciation year two - $3,600
Book value year one - $32,400
Book value year two- $28,800
Depreciation year one - $7,200
Depreciation year two = $5,760
Book value year one - $28,800
Book value year two = $23,040
Depreciation year one - $14,400
Depreciation year two = $8,640
Book value year one - $21,600
Book value year two = $12,960
2. On January 1, Hobart Mfg. Co. purchased a drill press at a cost of $36,000. The drill press is expected to last 10 years and has a residual value of $6,000. During its 10-year life, the equipment is expected to produce 500,000 units of product. In year one 25,000 units were produced. In year two 84,000 units were produced. What is the amount of depreciation for year one and year two and the book value of the drill press at December 31, year one and year two, assuming the sum of the years digits method is used:
Year one depreciation: $5,455
Year two depreciation: $4,909
Year one book value: $24,545
Year two book value: $19,636
Year one depreciation: $3,000
Year two depreciation: $3,000
Year one book value: $27,000
Year two book value: $24,000
Year one depreciation: $5,455
Year two depreciation: $4,909
Year one book value: $30,545
Year two book value: $25,636
Year one depreciation: $3,600
Year two depreciation: $3,600
Year one book value: $32,400
Year two book value: $28,800
Explanation / Answer
1]DEPRECIATION RATE UNDER DOUBLE DECLINING BALANCE METHOD = [(1/10)*100]*2
= 20%
DEPRECIATION FOR THE FIRST YEAR = 20% OF 36000
=7200
BOOK VALUE AT THE END OF FIRST YEAR = 36000-7200 = 28800
DEPRECIATION FOR THE SECOND YEAR = 28800*20%
=5760
BOOK VALUE AT THE END OF SECOND YEAR = 28800-5760
=23040
THEREFORE THE ANSWER IS
Depreciation year one - $7,200
Depreciation year two = $5,760
Book value year one - $28,800
Book value year two = $23,040
2]DEPRECIATION UNDER SUM OF YEARS DIGIT METHOD
DEPRECIATION RATE FOR THE FIRST YEAR = 10/(10+9+8+.....+1] * 100
=10/55 * 100
=18.18%
DEPRECIATION FOR THE FIRST YEAR = 18.18% OF (36000-6000)
= 5455
BOOK VALUE AT THE END OF FIRST YEAR = 36000-5455
=30545
DEPRECIATION RATE FOR THE SECOND YEAR =9/55 * 100 = 16.36%
DEPRECIATION FOR THE SECOND YEAR = 16.36%OF (36000-6000)
=4909
BOOK VALUE AT THE END OF SECOND YEAR = 30545-4909
=25636
THEREFORE THE ANSWER IS
Year one depreciation: $5,455
Year two depreciation: $4,909
Year one book value: $30,545
Year two book value: $25,636
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