value: 3.00 points A machine costing $212,200 with a four-year life and an estim
ID: 2554797 • Letter: V
Question
value: 3.00 points A machine costing $212,200 with a four-year life and an estimated $15,000 salvage value is installed in Luther Company's factory on January 1. The factory manager estimates the machine will produce 493,000 units of product during its life. It actually produces the following units: year 1, 123,000; year 2, 122,700; year 3, 120,900; and year 4, 136,400. 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: Compute depreciation for each year (and total depreciation of all years combined) for the machine under each depreciation method. (Round your per unit depreciation to 2 decimal places.) Straight-Line Depr Year Depreinte Expense 49,300 49,300 49,300 49,300 197.200 Total $Explanation / Answer
CALCULATION OF THE DEPRECIATION AS PER STRAIGHT LINE METHOD Purchase Cost of Machine $ 2,12,200.00 Less: Salvage Value $ 15,000.00 Net Value for Depreciation $ 1,97,200.00 Usefule life of the Assets 4 years Depreciation per year = Value for Depreciation / 4 years = 49,300.00 Total Depreciation in 4 years = ($ 49,300 X 4)= 1,97,200.00 CALCULATION OF THE DEPRECIATION AS PER ACTIVITY METHOD UNITS OF OUTPUT Purchase Cost of Machine $ 2,12,200.00 Less: Salvage Value $ 15,000.00 Net Value for Depreciation $ 1,97,200.00 Expected to produce units 4,93,000.00 Units Depreciation per unit = 0.40 Per Unit ($ 197,200 / 493,000 Units) Depreciation for Year 1 = (123000 units * $ 0.40) $ 49,200.00 Depreciation for Year 2 = (122700 units * $ 0.40) $ 49,080.00 Depreciation for Year 3 = (120,900 units * $ 0.40) $ 48,360.00 Depreciation for Year 4 = (136,400 units * $ 0.40) $ 54,560.00 CALCULATION OF THE DEPRECIATION AS PER SUM OF DOUBLE DECLINE METHOD Purchase Cost of Machine $ 2,12,200.00 Useful Life = 4 years Depreciation per year = $ 53,050.00 (Purchase price / Useful life) Rate of Depreciation = 0.25 or 25% (Depreication / Purchase price ) Double decline deprection rate = 25% * 2 = 50.0% Book Value as on FIRST Year $ 2,12,200.00 Depreciation for the year 1 @ 40% $ 84,880.00 Closing balance for the year 1 $ 1,27,320.00 Opening Balance for the year 2 $ 1,27,320.00 Depreciation for the year 2 @ 40% $ 50,928.00 Closing balance for the year 2 $ 76,392.00 Opening Balance for the year 3 $ 76,392.00 Depreciation for the year 3 @ 40% $ 30,556.80 Closing balance for the year 3 $ 45,835.20 Opening Balance for the year 4 $ 45,835.20 Depreciation for the year 4 @ 40% $ 18,334.08 Closing balance for the year 4 $ 27,501.12
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