Problem 9-7A In recent years, Farr Company has purchased three machines. Because

Question

Problem 9-7A 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 1 Jan. 1, 2012 $96,000 $12,000 8 Straight-line 2 July 1, 2013 85,000 10,000 5 Declining-balance 3 Nov. 1, 2013 66,000 6,000 6 Units-of-activity 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 30,000. Actual hours of use in the first 3 years were: 2013, 800; 2014, 4,500; and 2015, 6,000. Incorrect answer. Your answer is incorrect. Try again. Compute the amount of accumulated depreciation on each machine at December 31, 2015. MACHINE 1 MACHINE 2 MACHINE 3 Accumulated Depreciation at December 31 $Entry field with incorrect answer now contains modified data $Entry field with incorrect answer now contains modified data $Entry field with incorrect answer now contains modified data LINK TO TEXT LINK TO TEXT Incorrect answer. Your answer is incorrect. Try again. 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? 2013 2014 Depreciation Expense $Entry field with incorrect answer now contains modified data $Entry field with incorrect answer now contains modified data

Explanation / Answer

Machine 1. Depreciation under Straight Line Method = (96000 (Cost) - 12000 (Salvage Value)) / 8 Years = $10500 per year Depreciation Charged During 2015 = $10500 Accumulated Depreciation Till 2015 = $10500 X 4 Years = $42000 Machine 2. Depreciation rate under Straight Line Method = 20% Depreciation rate under Double Declining Method = 2 X 20% = 40% Purchase of Machine 2 - July 1, 2013                          85,000 Less: Dep. - $85000 X 40% X 6/12                        (17,000) Book Value as on Dec 31, 2013                          68,000 Less: Dep. - $68000 X 40%                        (27,200) Book Value as on Dec 31, 2014                          40,800 Less: Dep. - $40800 X 40%                        (16,320) Book Value as on Dec 31, 2015                          24,480 Machine 3. Depreciation Rate per Hour - Unit of Activity Method = ($66000 - $6000) / 30000 Hrs = Rs. 2 per hr. Depreciation for 2013 - 800 Hrs X $2 = $1600 Depreciation for 2014 - 4500 Hrs X $2 = $9000 Depreciation for 2015 - 6000 Hrs X $2 = $12000 Dep. For Year ended Dec 31, 2015 Accumulated Dep. Till Dec 31, 2015 Machine 1                     10,500                          42,000 Machine 2                     16,320                          60,520 Machine 3                     12,000                          22,600 Answer 2. If Machine 2 is purchased on April 1, 2013 Purchase of Machine 2 - April 1, 2013                          85,000 Less: Dep. - $85000 X 40% X 9/12                        (25,500) Book Value as on Dec 31, 2013                          59,500 Less: Dep. - $59500 X 40%                        (23,800) Book Value as on Dec 31, 2014                          35,700 Less: Dep. - $35700 X 40%                        (14,280) Book Value as on Dec 31, 2015                          21,420 So, Revised Schedule is Dep. For Year ended Dec 31, 2015 Accumulated Dep. Till Dec 31, 2015 Machine 1                     10,500                          42,000 Machine 2                     14,280                          63,580 Machine 3                     12,000                          22,600

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