Option #1: Computing and Recording Depreciation On June 1, a machine costing $66

Question

Option #1: Computing and Recording Depreciation

On June 1, a machine costing $660,000 with a 5-year life and an estimated $50,000 salvage value was purchased. It was also estimated that the machine would produce 200,000 units during its life. Actual production would be 40,000 units per year for all five years.

Using the depreciation template provided, determine the amount of depreciation expense for the third year under each of the following assumptions:

The company uses the straight-line method of depreciation.

The company uses the units-of-production method of depreciation.

The company uses the double-declining-balance method of depreciation.

Assuming straight line depreciation, prepare journal entry for the third year.

Assume the company sold the machine at the end of the fourth year for $100,000. Prepare a journal entry for asset disposal in the fourth year.

G H ACT300 Principles of Accoutning Module 6: Critical Thinking Template option 1 (Depeiation Template) Record journal entry for depreciation expense for the third year: $0 Cost Salvage value Depreciable cost Useful life Debit Credit $o Dec. 31 Depreciation Expense Accumulated Depreciation- Equipment To record annual depreciation 0 Useful life in units of production Record journal entry for asset disposal in the fourth year: Straight line method Cost - Salvage Value Useful life in ula Depreciable costCost Salvage Value Debit Credit Dec. 31 Cash Accumulated Depreciation Loss on disposal Equipment To record disposal of equipment 2Annual depreciation expense- Also, compute the straight line depreciation rate. The formula is 100% divided by the useful life in years Compute the straight line depreciation rate below Straight line depre ciation rate #DIV/0! reciation for the Period End of Period Depreciable Depreciation Depreciation Accumulated Book Depreciation Value Annual period Cost rate Expense 7 Year 8 Year 2 9 Year 3 0 Year4 1 Year 5 Cost of machine 4 Salvage value is not depreciated Straight-Linc Depreciation Units-of-Production Double-Declining Balance

Explanation / Answer

Cost of mchine: 660000 Joournal entries: less: Salvage value 50000 3rd Year Depreciation expense Account Dr. 122000 Depreciable amount 610000     Accumulated dep 122000 Life: 5 Annual depreciation 122000 4th year Cash account r. 100000 Loss on sale of machine Dr. 72000 Straight line Rate 122000/610000*100 = 20% Accumulated dep Account Dr. 488000 Year Dep. Cost Rate Dep exp Accumulated Book Value       Machinery equipment 660000 depreciation 1 610000 20% 122000 122000 538000 2 610000 20% 122000 244000 416000 3 610000 20% 122000 366000 294000 4 610000 20% 122000 488000 172000 5 610000 20% 122000 610000 50000 Units of Production: Cost of mchine: 660000 less: Salvage value 50000 Depreciable amount 610000 Life: 200000 Dep expense 3.05 per unit Yearr Number Dep rate dep exp accumulated Book Value of units dep 1 40000 3.05 122000 122000 538000 2 40000 3.05 122000 244000 416000 3 40000 3.05 122000 366000 294000 4 40000 3.05 122000 488000 172000 5 40000 3.05 122000 610000 50000 Dpouble declining SLM dep rate:20% DDM rate: 40% Year Beg. Period Dep rate Dep. Accumulated Book Value BV Expense Dep 1 660000 40% 264000 264000 396000 2 396000 40% 158400 422400 237600 3 237600 40% 95040 517440 142560 4 142560 40% 57024 574464 85536 5 85536 40% 35536 610000 50000

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