Solar Innovations Corporation bought a machine at the beginning of the year at a

Question

Solar Innovations Corporation bought a machine at the beginning of the year at a cost of $34,000. The estimated useful life was five years and the residual value was $4,000. Assume that the estimated productive life of the machine is 15,000 units. Expected annual production for year 1, 3,100 units; year 2, 4,100 units; year 3, 3,100 units; year 4, 3,100 units; and year 5, 1,600 units. Required .Complete a depreciation schedule for each of the alternative methods. (Do not round intermediate calculations.) a Straight-line b. Units-of-production.

Explanation / Answer

Note: As per rule I am answering first question (Including all its’ sub-parts.)

Question -1;

(a) Straight line method;

Year

Income statement

Balance Sheet

Depreciation expense

Cost

Accumulated depreciation

Book value

At acquisition

$34000

$0

$34000

1

$6000

$34000

$6000

$28000

2

$6000

$34000

$12000

$22000

3

$6000

$34000

$18000

$16000

4

$6000

$34000

$24000

$10000

5

$6000

$34000

$30000

$4000

Working note;

1. Annual depreciation will be calculated as follow;

($34000 – $4000) / 5 = $6000

(b) Units-of-production method;

Year

Income statement

Balance Sheet

Depreciation expense

Cost

Accumulated depreciation

Book value

At acquisition

$34000

$0

$34000

1

$6200

$34000

$6200

$27800

2

$8200

$34000

$14400

$19600

3

$6200

$34000

$20600

$13400

4

$6200

$34000

$26800

$7200

5

$3200

$34000

$30000

$4000

Working note;

1. Annual depreciation will be calculated as follow;

Total expected production (3100 units + 4100 units + 3100 units + 3100 units + 1600 units) = 15000 units

Total cost of machine = $34000

Salvage value = $4000

Thus per unit depreciation will be ($34000 - $4000) / 15000 = $2 per unit

(C) Double-decline method;

Year

Income statement

Balance Sheet

Depreciation expense

Cost

Accumulated depreciation

Book value

At acquisition

$34000

$0

$34000

1

$13600

$34000

$13600

$20400

2

$8160

$34000

$21760

$12240

3

$4896

$34000

$26656

$7344

4

$2937.60

$34000

$29593.6

$4406.40

5

$406.40

$34000

$30000

$4000

Working note;

1. Annual depreciation will be calculated as follow;

($34000 – $4000) / 5 = $6000

Rate of depreciation ($6000 / $30000) = 20%

Rate as per double-decline method will be (2 * 20%) = 40%

Year

Income statement

Balance Sheet

Depreciation expense

Cost

Accumulated depreciation

Book value

At acquisition

$34000

$0

$34000

1

$6000

$34000

$6000

$28000

2

$6000

$34000

$12000

$22000

3

$6000

$34000

$18000

$16000

4

$6000

$34000

$24000

$10000

5

$6000

$34000

$30000

$4000

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