In recent years, Farr Company has purchased three machines. Because of frequent
ID: 2450287 • Letter: I
Question
In recent years, Farr Company has purchased three machines. Because of frequent employee turnover in the accounting department, a different accountant was in charge of selecting the depreciation method for each machine, and various methods have been used. Information concerning the machines is summarized in the table below. For the declining-balance method, Farr Company uses the double-declining rate. For the units-of-activity method, total machine hours are expected to be 31,000. Actual hours of use in the first 3 years were: 2013, 640; 2014, 6,410; and 2015, 8,080. Compute the amount of accumulated depreciation on each machine at December 31, 2015. If machine 2 was purchased on April 1 instead of July 1, what would be the depreciation expense for this machine in 2013? In 2014?Explanation / Answer
Machine 1
Annual Depreciation = (Cost-Salvage Value)/Useful Life
Annual Depreciation = (127000-40600)/8
Annual Depreciation = 10800
Accumulated Depreciation at December 31 2015 = Annual Depreciation * no of year lapsed
Accumulated Depreciation at December 31 2015 = 10800*4
Accumulated Depreciation at December 31 2015 = $ 43200
Machine 2
Depreciation rate = 1/ useful life * 2
Depreciation rate = 1/5 * 2
Depreciation rate = 40%
Depreciation Expenses in 2013 = Cost *Depreciation rate*6/12
Depreciation Expenses in 2013 = 90000*40%*6/12
Depreciation Expenses in 2013 = 18000
Accumulated Depreciation at the end of 2013 = Accumulated Depreciation at the Beginning + Depreciation Expenses during the year
Accumulated Depreciation at the end of 2013 = 0 + 18000
Accumulated Depreciation at the end of 2013 = 18000
Book Value at the end of 2013 = Cost - Accumulated Depreciation at the end of 2013
Book Value at the end of 2013 = 90000-18000
Book Value at the end of 2013 = 72000
Depreciation Expenses in 2014 = Book Value at the end of 2013 *Depreciation rate
Depreciation Expenses in 2014 = 72000*40%
Depreciation Expenses in 2014= 28800
Accumulated Depreciation at the end of 2014 = Accumulated Depreciation at the Beginning + Depreciation Expenses during the year
Accumulated Depreciation at the end of 2014 = 18000 + 28800
Accumulated Depreciation at the end of 2014 = 46800
Book Value at the end of 2014 = Cost - Accumulated Depreciation at the end of 2014
Book Value at the end of 2014 = 90000-46800
Book Value at the end of 2014 = 43200
Depreciation Expenses in 2015 = Book Value at the end of 2014 *Depreciation rate
Depreciation Expenses in 2015 = 43200*40%
Depreciation Expenses in 2015= 17280
Accumulated Depreciation at the end of 2015 = Accumulated Depreciation at the Beginning + Depreciation Expenses during the year
Accumulated Depreciation at the end of 2015 = 46800 + 17280
Accumulated Depreciation at the end of 2015 = 64080
Machine 3
Depreciation rate per machine hour = (Cost-Salvage Value)/Expected Total machine hour
Depreciation rate per machine hour = (94150-7350)/31000
Depreciation rate per machine hour = 2.80
Accumulated Depreciation at the end of 2015 = (Actual Machine Hour used in 2013 + Actual Machine Hour used in 2014 + Actual Machine Hour used in 2015)*Depreciation rate per machine hour
Accumulated Depreciation at the end of 2015 = (640+ 6410+8080)*2.80
Accumulated Depreciation at the end of 2015 = $ 42,364
Answer
2)
Machine 2
Depreciation rate = 1/ useful life * 2
Depreciation rate = 1/5 * 2
Depreciation rate = 40%
Depreciation Expenses in 2013 = Cost *Depreciation rate*9/12
Depreciation Expenses in 2013 = 90000*40%*9/12
Depreciation Expenses in 2013 = 27000
Accumulated Depreciation at the end of 2013 = Accumulated Depreciation at the Beginning + Depreciation Expenses during the year
Accumulated Depreciation at the end of 2013 = 0 + 27000
Accumulated Depreciation at the end of 2013 = 27000
Book Value at the end of 2013 = Cost - Accumulated Depreciation at the end of 2013
Book Value at the end of 2013 = 90000-27000
Book Value at the end of 2013 = 63000
Depreciation Expenses in 2014 = Book Value at the end of 2013 *Depreciation rate
Depreciation Expenses in 2014 = 63000*40%
Depreciation Expenses in 2014= 25200
Answer
Machine 1 Machine 2 Machine 3 Accumulated Depreciation at December 31 43200 64080 42364Related Questions
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