On October 1, 2016, the Allegheny Corporation purchased machinery for $323,000.

Question

On October 1, 2016, the Allegheny Corporation purchased machinery for $323,000. The estimated service ife of the machinery is 10 years and the estimated residual value is $4,000. The machine is expected to produce 550,000 units during its life Required Calculate depreciation for 2016 and 2017 using each of the following methods. Partial-year depreciation is calculated based on the number of months the asset is in service. (Do not round intermediate calculations.) 1. Straight line Straight-Line Depreciation Choose Denominator Estimated Useful Life (years) Choose Numerator: Annual Depreciation Annual Depreciation Cost minus Salvage / = 319,000 Year Annual Depreciation x 2016S 2017 31,900 Depreciation Expense 7,975 31,900 Fraction of Year 31,900x 31,9001 x 2. Sum-of the years' digits Sum-of-the-years' digits depreciation Depreciable Fraction Xof Year Depreciation Rate per Year Base Expense 1,450 S 1,450 S 39,150 S 13,050 S 52,200 10/1/2016 through 12/31/2016 $ 3190001 x Total depreciation expense 2016 20000-ELLE 1/1/2017 through 9/30/2017 S 319000x S 319,000 Total depreciation expense- 2017

Explanation / Answer

1 Straight line depreciation = (initial cost - salvage value ) / life of asset Initial cost 323000 Salvage value 4000 Life of asset 10 Depreciation Straight line depreciation = (54000-10000)/4 31900 2016 31900 * 3/12 7975 2017 31900 *12/12 31900 2 Sumof digits 10/1/2016to 31/12/2016 319000 10/55 *3/12 14500 Total depreciation for 2016 14500 1/1/2017 to 30/9/2017 319000 10/55 *9/12 43500 10/1/2017 to 31/12/2017 319000 9/55 *3/12 13050 Total depreciation for 2017 56550 3 Double declining method rate = 1/10= .1 *2 = .2or 20% Depreciation for the period End of period Begginning book value Depreciation rate Annual depreciation Accumulated depreciation Book value Year 2016 323000 20.00% 16150 16150 306850 2017 306850 20.00% 61370 77520 245480 4 One fifty percent declining method rate = 1/10= .1 *1.5 = .15or 15% Depreciation for the period End of period Begginning book value Depreciation rate Annual depreciation Accumulated depreciation Book value Year 2016 323000 15.00% 12113 12112.5 310887.5 2017 310887.5 15.00% 46633 58745.625 264254.375 5 Units of production method Depreciation per machine hour = (Cost of asset - salvage value )/ total machine hour Depreciation per machine hour = (323000 - 4000 )/550000 Depreciation per item 0.58 Accumulated depreciation Depreciation expense Book value 323000 2016 29000*.58 16820 16,820 3,06,180 2017 44000*.58 25520 42,340 2,80,660

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