A. Aa- AaBbecDc AaBbCcD AaBb@ AaBbCc nt Paragraph Style 21n Januay 2 201 Clearfi
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A. Aa- AaBbecDc AaBbCcD AaBb@ AaBbCc nt Paragraph Style 21n Januay 2 201 Clearfield Company purchased a machine for $80,000. The machine has an eight year estumated useful life and an $8,000 estimated residual value. In addition, the company expects to use the machme 200000 bowrs. Assuming that the machine was used 35.000 hours dunng 20x2, complete the following chart If2 figwe cannot be determined, ndicate so by placing an K in the box (Show your work) Dopraciation Carzying Method 8t troduntacn netmod for 0xExplanation / Answer
Streight Line method
Annual Depreciation = Machine cost - salvage value)/ useful years
Annual Depreciation= (80000 - 8000)/ 8
= (72000)/ 8
= 9000
Straight Line Depreciation Schedule
Year
Annual Depreciation
Accumulated Depreciation
Book value
1
9000
9000
71000
2
9000
18000
62000
Production method
In Units of production method depreciation is charged as per the asset use, more depreciation is charged if asset is used more in a year and vice versa.
The formula to calculate annual depreciation is,
Annual depreciation = [Units produced in year/ Life of asset in Units]* (Asset Cost - Salvage value)
Year 2 Depreciation is calculated similarly,
Year 2 Depreciation = 35000/ 200000* (80000 - 8000)
= 0.175 * 72000
= 12600
We cannot determine book value or carrying value of asset because, year 1 depreciation is unknown.
Double Declining balance method
Declining balance depreciation is calculated by following formula)
Depreciation = Depreciation rate * Book value of asset
Depreciation rate = Accelerator * straight line rate
Straight line rate = 1/ useful life of asset in years
If asset cost is 80000 and its useful life is 8 years then straight line rate will be = 1/8
= 0.125
After that we need to calculate Depreciation rate which will be = 0.125*2= 0.25
Depreciation for the first year will be,
Depreciation 1st year = 0.25*80000
= 20000
Book value of asset after first year of depreciation will be = 80000- 20000= 60000
Next year depreciation will be calculated same way, we can now prepare the depreciation schedule
Year
Depreciation
Accumulated depreciation
Book value
1
20000
20000
60000
2
15000
35000
45000
So below is the table for annual depreciation and book value
Method
Dep Exp
Book value
Straight line method
9000
62000
Production method
12600
X
Double -declining balance method
15000
45000
Straight Line Depreciation Schedule
Year
Annual Depreciation
Accumulated Depreciation
Book value
1
9000
9000
71000
2
9000
18000
62000
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