Machine Acquired Cost Salvage Value Useful Life (in years) Depreciation Method M
ID: 2515682 • Letter: M
Question
Machine
Acquired
Cost
Salvage
Value
Useful Life
(in years)
Depreciation
Method
MACHINE 1
MACHINE 2
MACHINE 3
LINK TO TEXT
LINK TO TEXT
2016
2017
In recent years, Sunland 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
For the declining-balance method, Sunland Company uses the double-declining rate. For the units-of-activity method, total machine hours are expected to be 34,500. Actual hours of use in the first 3 years were: 2016, 770; 2017, 5,700; and 2018, 7,400.
Explanation / Answer
PART 1
Accumulated Depreciation at December 31,2018 - MACHINE 1
Straight Line Depreciation = ( Cost of the asset – Salvage Value ) / Usefull Life
= ($129500 - $41500) / 8 Years
= $11000 per year
Depreciation 2015 = $11,000
Depreciation 2016 = $11,000
Depreciation 2017 = $11,000
Depreciation 2018 = $11,000
Accumulated Depreciation at December 31,2018 = $11000 x 4 = $44000
Accumulated Depreciation at December 31,2018 - MACHINE 2
Year
Book Value at the beginning
Depreciation Rate
Annual Depreciation
Accumulated Depreciation
Book Value at the end
2016
$85500
0.40
17100
17100
68400
2017
68400
0.40
27360
44460
41040
2018
41040
0.40
16416
60876
24624
Depreciation Rate =2x 1/5 = 0.40
2016 Depreciation = 85500 * 0.40* 6/12 = $17100
Accumulated Depreciation at December 31,2018 = $60,876
Accumulated Depreciation at December 31,2018 - MACHINE 3
Depreciation = [(Cost of Asset - Residual Value) / Estimated Total hours] x Actual hours
Depreciation Year 2016 = $69000 x (770 Hours / 34500 Hours) * 2/12
= $257
Depreciation Year 2017 = $69000 x (5700 Hours / 34500 Hours)
= $11400
Depreciation Year 2018 = $69000 x (7400 Hours / 34500 Hours) = $14800
Accumulated Depreciation at December 31,2018 = $267 + 11400+14800
=$ 26467
PART 2
Depreciation for 2016 = $85500 x 0.40 x 9/12 = $25,650
Depreciation for 2017 = ($85500-$25650) x 0.40 = $23,940
Year
Book Value at the beginning
Depreciation Rate
Annual Depreciation
Accumulated Depreciation
Book Value at the end
2016
$85500
0.40
17100
17100
68400
2017
68400
0.40
27360
44460
41040
2018
41040
0.40
16416
60876
24624
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