Purity Ice Cream Company bought a new ice cream maker at the beginning of the ye

Question

Purity Ice Cream Company bought a new ice cream maker at the beginning of the year at a cost of $16,800. The estimated useful life was four years, and the residual value was $1,280. Assume that the estimated productive life of the machine was 9,700 hours. Actual annual usage was 3,880 hours in year 1; 2,910 hours in year 2; 1,940 hours in year 3; and 970 hours in year 4.

Purity Ice Cream Company bought a new ice cream maker at the beginning of the year at a cost of $16,800. The estimated useful life was four years, and the residual value was $1,280. Assume that the estimated productive life of the machine was 9,700 hours. Actual annual usage was 3,880 hours in year 1; 2,910 hours in year 2; 1,940 hours in year 3; and 970 hours in year 4.

a. Straight-line Depreciation AccumulatedNet Year Expense Depreciation Book Value At acquisition 2 4 b. Units-of-production (use four decimal places for the per unit output factor). Depreciation Accumulated Net Year Expense Depreciation Book Value At acquisition c. Double-declining-balance. Depreciation Accumulated Net Year Expense Depreciation Book Value At acquisition 4

Explanation / Answer

Purity Ice cream company

Straight line method

Depreciation                         =   cost of the machine less salvage value / no of useful life of the asset

                                             = $16800-$1280/4

                                             =$15520/4

                                             =$3880

Year          Depreciation expense         Accumulated depreciation     Net Book value

1                  $3880                                    $3880                                $15520-$3880=$11640

2                   $3880                                   $7760                               $15520-$7760= $ 7760

3.                  $3880                                   $11640                              $15520-$11640=$ 3880

4.                  $3880                                    $15520                             $15520-$15520 =   0

b. Units of production method

Depreciation                 =   cost of the machine less salvage value / estimated production hours

                                     = $16800 - $1280 / 9700 hours

                                    = $15520 / 9700 hours

                                    = $1.6 / production hour.

Year             Depreciationn exoense                  Accumulated depreciation             Net book value

1                   $1.6 x 3880 hours = $6208    $6208                               $15520-$6208=$9312

2                  $1.6 x 2910 hours =$4656                $10864                              $152020-$10864=$4656

3                 $1.6 x 1940 hours = $3104                  $13968                              $15520-$13968=$1552

4                 $1.6 x 970 hours =   $1552                  $15520                              $15520-$15520= 0

c.Double declining balance method                  

Deprecitation = cost of the asset / no of useful years                 = $16800 / 4 years          =   $4200

rate of depreciation = depreciation / cost of the asset x 2

                               = $4200 / $16800 x 2

                               = 50 %

Year         Net Book value    Depreciation %         Depreciation    Accumulated    Book value

                   year start                                                 xpense       Depreciation          year end

1                $16800                     50%                           $8400        $ 8400                    $8400

3                $ 4200                     50%                            $2100             $14700             $2100

4    $ 2100    0%                   $ 820              $15520 $1280 salvage value                     

In the final year the percentage would not be applied since the accumulated deprreciation at the end of year 4 should be equal to the cost of the assest minus salvage value

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