In recent years Howard Company has purchased three machines. Because of fre- que

Question

In recent years Howard Company has purchased three machines. Because of fre- quent 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.

ACQUIRED COST VALUE USEFUL LIFE METHOD

MACHINE 1 JULY 1, 2012 68000 5000 7 STRAIGHT LINE

MACHINE 2 APRIL 1, 2013 64000 6000 4 DECLINING

MACHINE 3 SEPT 1, 2013 84000 4000 8 UNITS OF ACTIVITY

Compute depreciation under different methods. (LO 3, 9), AP (a) Double-declining-balance exp. 2015 $91,200 $54,000 For the declining-balance method, Howard Company uses the double-declining rate. For the units-of-activity method, total machine hours are expected to be 40,000. Actual hours of use in the first 3 years were: 2013, 1,200; 2014, 6,400; and 2015, 7,000. Instructions (a) Compute the amount of accumulated depreciation on each machine at December 31, 2015. (b) If machine 2 was purchased on November 1 instead of April 1, what would be the depreciation expense for this machine in 2013? In 2014? (Round to the nearest dollar.) Stated in book machine 2 was $54,000

Explanation / Answer

Machine 1 (SLM) Cost   68000 Less: Salvage Value 5000 Depreciable Value of asset 63000 No of years 7 Depreciation for each year 9000 Accumulated depreciation as at December 31, 2015 2012(1/2 Year) 4500 2013 9000 2014 9000 2015 9000 31500 Machine 2 (Double Declining method) Cost   64000 Date Cost Depn rate Depreciation for each year Written down value Less: Salvage Value 6000 Value of asset for depn 58000 2013-9 months 64000 50 24000 40000 No of years 4 2014 40000 50 20000 20000 Depn rate under SLM 25 2015 20000 50 10000 10000 Depn rate DDM = SLM Rate * 2 50 Acc. Depn. 54000 If the machine was purchased on November 1 instead of April 1 Cost   64000 Date Cost Depn rate Depreciation for each year Written down value Less: Salvage Value 6000 2013-9 months 64000 50 5333.33 58666.67 Value of asset for depn 58000 2014 58666.67 50 29333.33 29333.33 2015 29333.33 50 14666.67 14666.67 No of years 4 Acc. Depn. 49333.33 Depn rate under SLM 25 Depn rate DDM = SLM Rate * 2 50 Machine 3 - Units of activity Date Cost Activity hours Depn /hour Depreciation for each year Cost   84000 Less: Salvage Value 4000 2013 80000 1200 2 2400 Value of asset for depn 80000 2014 80000 6400 2 12800 Total no of hours 40000 2015 80000 7000 2 14000 Depreciation for each hour 2 Acc. Depn. 29200 b.If the machine was purchased on November 1 instead of April 1 Accumulated Depreciation( Calculated as above)DDM 2013 29333.33 2014 14666.67

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