In recent years, Farr Company has purchased three machines. Because of frequent
ID: 2486369 • 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 35,000. Actual hours of use in the first 3 years were: 2013, 870; 2014, 5,470; and 2015, 7,190. 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:
Straight Line Method:
=Cost of Asset- Salvage Value/ No of years
=$127,000-$30,700/9
=$96,300/9
=$10,700
Machine 2:
Double Decline Method:
Dep % under Straight line Method= 1/5 years = 20%
Dep % under Double decline Method= 1/5 years = 2 x Dep % under Straight line Method
= 2 x 20%= 40%
Depreciation for 2013 ( July to Dec) 6 Months = 88,000 x 40% x 6/12= $17,600
Depreciation for 2014 = (88,000-17,600) x 40%= $70,400 x 40% =$28,160
Depreciation for 2015= ($70,400-$28,160) x 40%= $42,240 x 40%=$16,896
Double Declining Method
Year
Book Value of Beg yr
Dep Rate
=
Annual Dep
Accu Depr
Book Value
2013
88,000
20
=
17,600
17,600
70,400
2014
70,400
40
=
28,160
45,760
42,240
2015
42,240
40
=
16,896
62,656
25,344
Machine 3:
Units of Activity:
Depreciation for one hr
=Cost of Asset- Salvage Value/ No of estimated hrs
=$100,900-$6,400/35,000
=$94,500/35,000
=$2.7
Units-of-Activity method
Year
Book Value of Beg yr
Dep per hr
No of Hrs worked
Annual Dep
Accu Depr
Book Value
2013
100,900
2.70
870
2,349
2,349
98,551
2014
98,551
2.70
5,470
14,769
17,118
83,782
2015
83,782
2.70
7,190
19,413
36,531
64,369
Machine 1
Machine 2
Machine 3
Accumulated Depreciation
$ 42,800
$ 62,656
$ 36,531
-------------------------------------------------------------------------------------------------------------------------------
2) if Purchased on April ( Dep should be calculated for 9 months April to December)
Depreciation for 2013 ( Apr to Dec) 9 Months = 88,000 x 40% x 9/12= $26,400
Depreciation for 2014 = (88,000-26,400) x 40%= $61,600 x 40% =$24,640
Depreciation for 2015= ($61,600-$24,640) x 40%= $39,960 x 40%=$14,784
Double Declining Method
Year
Book Value of Beg yr
Dep Rate
=
Annual Dep
Accu Depr
Book Value
2013
88,000
30
=
26,400
26,400
61,600
2014
61,600
40
=
24,640
51,040
36,960
2015
36,960
40
=
14,784
65,824
22,176
Double Declining Method
Year
Book Value of Beg yr
Dep Rate
=
Annual Dep
Accu Depr
Book Value
2013
88,000
20
=
17,600
17,600
70,400
2014
70,400
40
=
28,160
45,760
42,240
2015
42,240
40
=
16,896
62,656
25,344
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