I am very confused with all of these numbers...I think I do understand the formu

Question

I am very confused with all of these numbers...I think I do understand the formulas for each depreciation method but I cannot seem my self understand how to figure out what numbers and years to use....please help guide me to initiate the process..........

A company purchased a new factory machine for $650,000. The machine is expected to be productive for 5 years and, at the end of the 5 years, it is expected to be worth $50,000 in salvage value. The machine manufactures widgets and is expected to produce 5 million widgets over its productive life.

As it eventually turned out, the machine actually was used productively for 6 years and then sold at the beginning of year 7. Over its life, the machine actually produced the following widgets per year:

Year Widgets Produced

1 900,000
2 1,200,000
3 1,000,000
4 1,400,000
5 1,200,000
6 1,300,000

The machine was placed in service at the beginning of year 1 and was used until the end of year 6. It was sold on January 1 of year 7 for $45,000 cash. The company ends its accounting year on December 31.

Instructions:
1) Prepare the journal entries to record the depreciation expense for year 4 under each of the following assumptions:

a) Straight line
b) Double declining
c) Units of production
d) Sum-of-the-years’ digits

Explanation / Answer

1a) This would be the easiest one to do, as it the same for all the four years. Straight Line = Asset cost - salvage value / usefule life = 650,000 - 50,000 / 5 = 120,000 1b) This one is a bit more difficult, as you would need to calculate it for each year. Double decline rate = 2/5 = 40% Year 1 = 650,000 x 40% = 260,000 Year 2 = (650,000 - 260,000) x 40% = 156,000 Year 3 = (650,000 - 260,000 - 156,000) x 40% = 93,600 Year 4 = (650,000 - 260,000 - 156,000 - 93,600) x 40% = 56,160 1c) Rate per unit = (650,000-50,000)/5,000,000 = 0.12 Year 4 = 1,400,000 x .12 = 168,000 1d) Sum of the Years Digits (SYD) = (cost-salvage value) x SYD fraction SYD Fraction = 2/15 = .13 Year 4 = 650,000-50,000 x .13 = 78,000

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