A machine costing $257,500 with a four-year life and an estimated $20,000 salvag

Question

A machine costing $257,500 with a four-year life and an estimated $20,000 salvage value is installed in Luther Company’s factory on January 1. The factory manager estimates the machine will produce 475,000 units of product during its life. It actually produces the following units: 220,000 in 1st year, 124,600 in 2nd year, 121,800 in 3rd year, 15,200 in 4th year. The total number of units produced by the end of year 4 exceeds the original estimate—this difference was not predicted. (The machine must not be depreciated below its estimated salvage value.)

Required

Prepare a table with the following column headings and compute depreciation for each year (and total depreciation of all years combined) for the machine under each depreciation method.

Check Year 4: units-of-production depreciation, $4,300; DDB depreciation, $12,187

Explanation / Answer

WN1 Machine Cost 257500 Less: Salvage 20000 Deprciable cost 237500 Expected Units 475000 Depreciation PU 0.50 Main Answer: SLM Unit of Produtn DDM Year Depreciation PA Accumulated Depreciation Depreciation PA Accumulated Depreciation Depreciation PA Accumulated Depreciation Unit of Production Method: (Units*0.50) 1 59375 59375 110000 110000 128750 128750 Year Units Depreciation PA Accumulated Depreciation 2 59375 118750 62300 172300 64375 193125 1 220000 110000 110000 3 59375 178125 60900 233200 32187.5 225312.5 2 124600 62300 172300 4 59375 237500 4300 237500 12187.5 237500 3 121800 60900 233200 4 15200 4300 237500 Total 481600 (237500-233200) WN2: Straight Line Method Machine Cost 257500 Less: Salvage 20000 Deprciable cost 237500 Life 4 Depreciation PA 59375 Year Depreciation PA Accumulated Depreciation 1 59375 59375 2 59375 118750 3 59375 178125 4 59375 237500 Total WN3: Double Dec Method Machine Cost 257500 Life 4 Depreciation Rate 1/4 Depreciation Rate 25.00% Doouble Rate 50.00% (Opening balance*50%) Year Opening Balance Depreciation PA Accumulated Depreciation Closing Balance 1 257500 128750 128750 128750 2 128750 64375 193125 64375 3 64375 32187.5 225312.5 32187.5 4 32187.5 12187.5 237500 20000 Total (237500-225312.50)

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