SnowKing Enterprises purchased new factory equipment on January 1, 20XX. As the

Question

SnowKing Enterprises purchased new factory equipment on January 1, 20XX. As the staff accountant you have been requested to analyze and report to your supervisor the various

depreciation options available. The company's fiscal year ends on December 31.

Cost $225,000

Estimated salvage $30,000

Estimated life in time (years) 5

Estimated life in activity (machine hours) 25,000

REQUIRED:

Compute depreciation and book value for each year using the following methods:

1. Straight-line method

2.Units-of-Production method, assuming the following activity usage:

2014 4,550

2015 5,750

2016 6,300

2017 3,600

2018 5,500

Total actual usage 25,700 machine hours

3.Declining Balance method-

RATE: 200%

4. Declining Balance method-

RATE:175%

Explanation / Answer

1. Straight-line method:

Depreciable cost = Cost - Salvage value = $225,000 - $30000 = $195,000

Annual straight-line depreciation Rate = 100% / Life in years = 100% / 5 years = 20%

2. Units-of-Production method:

Depreciation rate = Depreciable cost / Total usage = $195000/25700 = $7.59 per machine hour (rounded off to 2 decimal places)

3. Declining balance method - 200%:

Declining balance depreciation rate = 20% x 200% = 40%

4. Declining balance method - 175%:

Declining balance depreciation rate = 20% x 175% = 35%

Note: All amounts have been rounded off to the nearest dollar.

Year Depreciable Cost x Depreciation Rate = Annual Depreciation Expense End of Year Accumulated Depreciation Book Value 1 195000 20% 39000 39000 156000 2 195000 20% 39000 78000 117000 3 195000 20% 39000 117000 78000 4 195000 20% 39000 156000 39000 5 195000 20% 39000 195000 0

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