Problem 9-8A (Part Level Submission) In recent years, Wildhorse Co. has purchase

Question

Problem 9-8A (Part Level Submission) In recent years, Wildhorse Co. has purchased three machines. Because of frequent employee turnover in the accounting department, a different accountant was in charge of selecting the depreciation method for each machine, and various methods have been used Information concerning the machines is summarized in the table below Useful Life (in years) 8 Salvage Value Depreciation Method Machine Acquired Jan. 1, 2015 July 1, 2016 Nov. 1, 2016 Cost $120,000 90,000 70,400 $40,000 10,700 8,400 Straight-line Declining-balance Units-of-activity For the declining-balance method, Wildhorse Co. uses the double-declining rate. For the units-of-activity method, total machine hours are expected to be 31,000. Actual hours of use in the first 3 years were: 2016, 740; 2017, 6,500; and 2018, 7,900 (a) Compute the amount of accumulated depreciation on each machine at December 31, 2018 MACHINE 1 MACHINE 2 MACHINE 3 Accumulated Depreciation at December 3.1

Explanation / Answer

Machine 1 Depreciation under straight line method = (Cost of machine - salvage value)/useful life = (120000-40000)/8 = $10000 Acquired date = Jan 1, 2015 Accumulated depreciation as at Dec 31, 2018 = $10000*54 = $40000 Machine 2 Depreciation under double declining balance method = rate of depreciation as per straight line method*2*book value of asset at the beginning of the year Depreciation under straight line method = (Cost of machine - salvage value)/useful life = (90000-10700)/5 = $15860 Rate of depreciation as per straight line method = 15860/(90000-10700) = 20% Acquired date = July 1, 2016 Depreciation for year 1 (year ended Dec 31, 2016) = 20%*2*90000*6/12 = $18000 Depreciation for year 2 (year ended Dec 31, 2017) = 20%*2*(90000-18000) = $28800 Depreciation for year 3 (year ended Dec 31, 2018) = 20%*2*(90000-18000-28800) = $17280 Accumulated depreciation as at Dec 31, 2018 = 18000+28800+17280 = $64080 Machine 3 Depreciation under Units of activity method = ((Cost of machine - salvage value)/total machine hours)*machine hours of respective years Acquired date = Nov 1, 2016 Depreciation for year 1 (year ended Dec 31, 2016) = ((70400-8400)/31000)*740 = $1480 Depreciation for year 2 (year ended Dec 31, 2017) = ((70400-8400)/31000)*6500 = $13000 Depreciation for year 3 (year ended Dec 31, 2018) = ((70400-8400)/31000)*7900 = $15800 Accumulated depreciation as at Dec 31, 2018 = 1480+13000+15800 = $30280

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