On January 1, 2018, the Allegheny Corporation purchased machinery for $170,000.
ID: 2526221 • Letter: O
Question
On January 1, 2018, the Allegheny Corporation purchased machinery for $170,000. The estimated service life of the machinery Is 10 years and the estimated residual value is $5,000. The machine is expected to produce 300,000 units during Its life. Calculate depreciation for 2018 and 2019 using each of the following methods. 1. Straight line. 2. Sum-of-the-years'-digits. 3. Double-declining balance. 4. One hundred fifty percent declining balance. 5. Units of production (units produced In 2018, 45,000, units produced In 2019, 40,000) Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4Required 5 Calculate depreciation for 2018 and 2019 using straight line method. Annual Depreciation Expense Depreciation Expense Choose Numerator: Choose Denominator 185,000/ 10S 18,500 Depreciation Expense 2018 S 18,500 2019 Required 1 Required 2 >Explanation / Answer
Answer
Straight Line Method
Depreciation per year = (Cost – Salvage Value) / No. of Useful years
= (170,000 – 5,000) / 10 Years
= 16,500 Years
2018= $16,500
2019= $16,500
Sum-of-the-years digits Method
Sum of the year digit method
Depreciation for the Year
Year
Asset Cost
Depreciable Cost
Remaining Life of Asset
Fraction
Depreciation Expense
Accumulated Depreciation
Book Value
170,000
170,000
1
-
165,000
10
2/11
30,000
30,000
140,000
2
165,000
9
9/55
27,000
57,000
113,000
3
165,000
8
-
4
165,000
7
-
5
165,000
6
-
6
165,000
5
7
165,000
4
8
165,000
3
9
165,000
2
10
165,000
1
55
2018 = $30,000
2019 = $27,000
Double Declining Balance Method
Rate of Depreciation under Straight Line Method = 10%
Rate under Double Declining Balance = 2 * 10%
= 20%
Depreciation = Book Value * Rate
2018
Depreciation = 170,000 * 20%
2018 = $34,000
2019
Book Value = 136,000 (170,000 – 34,000)
Depreciation = 136,000 * 20%
2019 = $27,200
One hundred fifty percent declining balance
Rate of Depreciation under Straight Line Method = 10%
Rate under one hundred fifty percent declining balance = Straight Line rate * 1.5
= 10% * 1.5
Rate under one hundred fifty percent declining balance = 15%
Depreciation = Book value * Rate
2018
Depreciation = 170,000 * 15%
2018 = $25,500
2019
Depreciation = (170,000 – 25,500) * 15%
2019 = $21,675
Units of production Method
Depreciation per unit = (Cost – Salvage Value) / Total No. of Units
= (170,000 – 5,000) / 300,000 Units
Depreciation per unit = $0.55 per unit
2018
Depreciation = 45,000 Units * 0.55 per unit
2018 = $24,750
2019
Depreciation = 40,000 Units * 0.55 per unit
2019 = $22,000
Sum of the year digit method
Depreciation for the Year
Year
Asset Cost
Depreciable Cost
Remaining Life of Asset
Fraction
Depreciation Expense
Accumulated Depreciation
Book Value
170,000
170,000
1
-
165,000
10
2/11
30,000
30,000
140,000
2
165,000
9
9/55
27,000
57,000
113,000
3
165,000
8
-
4
165,000
7
-
5
165,000
6
-
6
165,000
5
7
165,000
4
8
165,000
3
9
165,000
2
10
165,000
1
55
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