Problem 9-7A Machine Acquired Cost Salvage Value Useful Life (in years) Deprecia

Question

Problem 9-7A

Machine

Acquired

Cost

Salvage
Value

Useful Life
(in years)

Depreciation
Method

MACHINE 1

MACHINE 2

MACHINE 3

LINK TO TEXT

LINK TO TEXT

2013

2014

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 $127,000 $32,500 9 Straight-line 2 July 1, 2013 88,000 11,700 5 Declining-balance 3 Nov. 1, 2013 73,730 7,730 7 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 33,000. Actual hours of use in the first 3 years were: 2013, 680; 2014, 6,410; and 2015, 8,100.

Explanation / Answer

(A) Amount of Accumulated Depreciation on each machine at December 31, 2015: -

   Machine 1;

  Depreciation for 2012 = $10500

    Depreciation for 2013 =$10500

Depreciation for 2014 = $10500

   Depreciation for 2015 =$10500

  $42000

Note:- Depreciation as per straight line method = cost - salvage value / useful lifes

= 127000 - 32500 / 9

= $10500 per year

Machine 2 ;

Year Book value Depreciation rate Depreciation Book Value at end

2013 88000 40% * 6 months/12months 17600 70400

2014 70400 40% 28160 42240

2015 42240 40% 16896 25344

$62656   

Note:- Double decline Depreciation rate = 2 * straight line depreciation rate

   = 2 * 1/5

   = 40%

Book Value at end = book value - depreciation

Machine 3 ;

Depreciation for 2013 = actual hour * depreciation per hour   = 680 * $2 = $1360

   Depreciation for 2014 = actual hour * depreciation per hour   = 6410 * 2 = $12820

Depreciation for 2015 = actual hour * depreciation perhour = 8100 * 2 = $16200

$30380

Note:- Depreciation per hour = (cost - salavge value ) / total hours

   = ( $73730 - 7730) / 33000

= $2 per hour

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