Flint Metal Shop purchased a stamping machine for $147,000 on March 1, 2006. The
ID: 2445191 • Letter: F
Question
Flint Metal Shop purchased a stamping machine for $147,000 on March 1, 2006. The machine is expected to have a useful life of 10 years, a salvage value of $27,000, a production of 250,000 units, and working hours of 30,000. During 2006, Flint used the stamping machine for 2,450 hours to produce 23,450 units. From the information given, compute the book depreciation expense for 2006 under each of the following methods: a) Straight line. b) Units of production method. c) Working hours. d) Double-declining balance (without conversion to straight line). e) Double-declining balance (with conversion to straight line).Explanation / Answer
a) Calculation of Depreciation under Straight Line method:
Annual Depreciation = Cost - Salvage Value / Life in Years
Annual Depreciation = 147,000 - 27,000 / 10 = $12,000 per Year
Depreciation for 2006 = $12,000
b. Calculation of Depreciation under units of production method:
Depreciation per unit = Cost - Salvage / Life in Units
Depreciation per Unit = 147,000 - 27,000 / 250,000 = $0.48 per unit
Depreciation in 2006 = 23,450 x 0.48 = $11,256
c. Depreciation on the basis of working hours = 147,000 - 27,000 / 30,000 = $4 Per Hour
Depreciation for 2006: 2,450 x 4 = $9,800
d. Depreciation on the basis of Double Declining Balance Method:
Rate of Depreciation = 10 x 2 = 20%
Depreciation for 2006 = 147,000 x 20% = $29,400
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