On October 1, 2016, the Allegheny Corporation purchased machinery for $267000. T
ID: 2396808 • Letter: O
Question
On October 1, 2016, the Allegheny Corporation purchased machinery for $267000. The estimated service life of the machinery is 10 years and the estimated residual value is $3,000. The machine is expected to produce 480.000 units during its life Required: Calculate depreciation for 2016 and 2017 using each of the following methods. Partial year depreciation is calculated based on the number of months the asset is in service. (Do not round intermediate calculations.) 1. Straight line. Choose Numerator: ation lAnnual Depreciation Fraction of Year Depreciation Year Annual Depreciation x 2016 2017 2.Sum-of the years digits DeExplanation / Answer
1) Straight line Depreciation
Annual Depreciation = Depreciable Base/Useful life [Depreciable base = Cost - Residual value]
= ($267,000 - $3,000)/10 yrs = $264,000/10 yrs = $26,400 per year
Depreciation expense for 2016 = Annual depreciation*3/12 (from october to december)
= $26,400*3/12 = $6,600
Depreciation expense for 2017 = Annual depreciation*12/12
= $26,400*12/12 = $26,400
2) Sum-of-the-year's digits depreciation
Sum of years = [n(n+1)/2] (where n = useful life i.e. 10 yrs)
= [10(11)]/2] = 55
Dep. exp. 10/1/16 through 12/31/16 = Depreciable base*Rate per year*Fraction of year
= $264,000*10/55*3/12 = $12,000
Total depreciation exp. 2016 = $12,000
Dep. exp. 1/1/17 through 9/30/17 = $264,000*10/55*9/12 = $36,000
Dep exp. 1/10/17 through 12/31/17 = $264,000*9/55*3/12 = $10,800
Total depreciation exp. 2017 = $36,000+$10,800 = $46,800
3) Double-Declining Balance
Dep. rate = (1/useful life)*2 = (1/10)*2 = 20%
4) One hunndred fifty percent declining balance
Rate = (1/useful life)*150% = (1/10)*150% = 15%
5) Units of production
Depreciation rate per unit = Depreciable base/Useful life in units
= $264,000/480,000 units = $0.55 per unit
2016 Dep. Exp. = Units produced in 2016*Depreciation rate per unit
= 24,000 units*$0.55 per unit = $13,200
2017 Dep. Exp. = Units produced in 2017*Depreciation rate per unit
= 39,000 units*$0.55 per unit = $21,450
Depreciation for the Period End of Period Annual Period Beginning of Period Book Value (A) Depreciation Rate (B) Fraction of Year (C) Depreciation Expense (D = A*B*C) Accumulated Depreciation Book Value (A-D) 2016 267,000 20% 3/12 13,350 13,350 253,650 2017 253,650 20% 12/12 50,730 64,080 202,920Related Questions
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