Cheetah Copy purchased a new copy machine. The new machine cost $136,000 includi
ID: 2391346 • Letter: C
Question
Cheetah Copy purchased a new copy machine. The new machine cost $136,000 including installation. The company estimates the equipment will have a residual value of $34,000. Cheetah Copy also estimates it will use the machine for four years or about 8,000 total hours. Actual use per year was as follows:
Year Hours Used 1 2,900 2 1,900 3 1,900 4 3,500 Cheetah Copy purchased a new copy mochine. The new machlne cost $136,000 Including Installation. The company estimates the equlpment will have e resldual value of $34,000. Cheetah Copy also estimates It will use the machine for four years or about 8,000 total hours. Actual use per year was as follows: Year Hours Used 2,900 1900 1900 3.500 value 5.00 points Required Information Required: 1. Prepare a depreclation schedule for four years using the straight-line method. (Do not round your intermediate calculations.) H COPY Depreciation Schedule-Straight-Line End of Year Amounts Depreciation Accumulated Year Book Value Expense TotalSExplanation / Answer
Cheetah Copy
Cheetah Copy
Depreciation Schedule - Straight Line
End of Year Amounts
Year
Depreciation Expense
Accumulated Depreciation
Book Value
1
$25,500
$25,500
$110,500
2
$25,500
$51,000
$85,000
3
$25,500
$76,500
$59,500
4
$25,500
$102,000
$34,000
Depreciation expense = depreciable base x 1/useful life
Depreciable base = cost – residual value
Cost = $136,000
Residual value = $34,000
Useful life = 4 years
Depreciable base = 136,000 – 34,000 = $102,000
Depreciation expense = 102,000/4 = $25,500
Under straight-line method, depreciation expense would remain constant throughout the useful life of the asset.
Hence, depreciation expense for each of the four years = $25,500
Cheetah Copy
Depreciation Schedule - Double Declining Balance
End of Year Amounts
Year
Depreciation Expense
Accumulated Depreciation
Book Value
1
$68,000
$68,000
$68,000
2
$34,000
$102,000
$34,000
3
$0
$102,000
$34,000
4
$0
$102,000
$34,000
Depreciation expense = cost x 2 x straight line depreciation rate
Straight line depreciation rate = ¼ =25%
Double declining depreciation rate = 2 x 25% = 50%
Cost = $136,000
Depreciation expense for Year 1 = 136,000 x 50% = $68,000
Depreciation expense for Year 2 = depreciation rate x book value
Book value = cost – accumulated depreciation
Book value = 136,000 – 68,000 = $68,000
Depreciation expense for Year 2 = 68,000 x 50% = $34,000
Since the book value cannot be below the residual value, no depreciation expense is provided for Years 3 and 4.
Cheetah Copy
Depreciation Schedule - Activity Based Method
End of Year Amounts
Year
Depreciation Expense
Accumulated Depreciation
Book Value
1
$36,975
$36,975
$99,025
2
$24,225
$61,200
$74,800
3
$24,225
$85,425
$50,575
4
$16,575
$102,000
$34,000
Depreciation expense = (depreciable base x actual use per year)/total estimated activity
Depreciable base = cost – residual
= 136,000 – 34,000 = $102,000
Depreciation expense for Year 1 = (102,000 x 2,900 hours)/8,000 hours = $36,975
Depreciation expense for Year 2 = (102,000 x 1,900 hours)/8,000hours = $24,225
Depreciation expense for Year 3 = (102,000 x 1,900 hours)/8,000 hours = $24,225
Depreciation expense for Year 4 = (102,000 x 3,500 hours)/8,000 hours = $44,625
Though the depreciation expense for Year 4 comes to $44,625, it would make book value to fall below the residual value of $34,000. Hence, the depreciation expense in Year 4 is limited to $16,575 (50,575 – 34,000 = 16,575).
Cheetah Copy
Depreciation Schedule - Straight Line
End of Year Amounts
Year
Depreciation Expense
Accumulated Depreciation
Book Value
1
$25,500
$25,500
$110,500
2
$25,500
$51,000
$85,000
3
$25,500
$76,500
$59,500
4
$25,500
$102,000
$34,000
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