Exercise 9-20 Oriole Company purchased a new machine on October 1, 2017, at a co

Question

Exercise 9-20 Oriole Company purchased a new machine on October 1, 2017, at a cost of $86,400. The company estimated that the machine has a salvage value of $7,100. The machine is expected to be used for 64,300 working hours during its 8-year life. Compute depreciation using the following methods in the year indicated. Declining-balance using double the straight-line rate for 2017 and 2018. (Round answers to O decimal places, e.g. 125) 2017 2018 Depreciation using the Declining-balance method Calculate the depreciation cost per hour. (Round answer to 2 decimal places, e.g. $1.25) Depreciation cost per hour g Units-of-activity for 2017, assuming machine usage was 410 hours. (Round answer to 0 decimal places, e.g. 125) Depreciation using the Units-of-activity method for 2017

Explanation / Answer

Part 1

Depreciation under double declining rate is double the straight line rate

[ 1 / Straight line rate ] x 2

= [ 1 / 8 ] x 2

= 0.25 or 25%

Depreciation for each year

= Opening book value x Depreciation rate x Months used / 12

Months used in 2017 = October to December = 3 months

So, Depreciation for 2017

= $86,400 x 25% x 3 / 12

= $ 5,400

Book value at the beginning of 2018

= Book value in 2017 – Depreciation for 2017

= $ 86,400 - $ 5,400

= $ 81,000

Depreciation for 2018

= $ 81,000 x 25% x 12/12

= $ 20,250

Part 2

Depreciation cost per hour

= (Cost – Estimated salvage value) / Expected working hours

= ($86,400 - $7,100) / 64,300

= $ 1.23

Depreciation for 2017

Number of hours x Depreciation per hour

= 410 x $1.23

= $ 504

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.