In recent years, Farr Company has purchased three machines. Because of frequent
ID: 2453140 • 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.
Machine
Acquired
Cost
Salvage
Value
Useful Life
(in years)
Depreciation
Method
Compute the amount of accumulated depreciation on each machine at December 31, 2015.
MACHINE 1
MACHINE 2
MACHINE 3
Machine
Acquired
Cost
Salvage
Value
Useful Life
(in years)
Depreciation
Method
Explanation / Answer
Machine 1:
Jan 1 2012
Cost = $ 1,32,000
Salvage value = $ 39,300
Useful Life in years = 9 years
Straight Line Method:
Annual Depreciation
(1,32,000-39,300)/9
= $ 10,300
Machine 2 :
July 2013
Cost = $ 81,000
Salvage value = $ 12,000
useful life in years = 5 years
Double Declinling Balance Method:
2013 Depreciation= 81000*20/100= 16200
= 16200(81000*40%*6/12)
= 16200(32400*6/12)
Book Value at end 2013 $ 64,800
2014 Depreciation = 64800*40% = 25920
Book Value at end 2014 $ 38,880
2015 Depreciation =38880*40% = 15553
Book value at end 2015 $ 23,329
Accumulated depreciation machine at dec 31 2015
= 16200+25920+15552
= 57,673
Accumulated depreciation on the machine at dec 31 2015
= 81000-23329
= $ 57,673
Machine 3 :
Nov 1 2013
Cost = $ 89320
Salvage = $ 6820
Useful life in year = 6 years
Units of Activity:
Depreciation per unit = (89320-6820)/32000 hours = 2.57 per hour
2013 Depreciation = 670*2.57 = 1721
2014 Depreciation = 4790*2.57 = 12310
2015 Depreciation = 6200*2.57 = 15934
Accumulation Depreciation at dec 31 2015 $ 29,965
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