In recent years, Wildhorse Co. has purchased three machines. Because of frequent
ID: 2579189 • Letter: I
Question
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. Machine Acquired Cost Salvage Value Useful Life (in years) Depreciation Method 1 Jan. 1, 2015 $123,000 $23,000 10 Straight-line 2 July 1, 2016 92,500 11,400 5 Declining-balance 3 Nov. 1, 2016 75,700 6,700 6 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 34,500. Actual hours of use in the first 3 years were: 2016, 850; 2017, 6,200; and 2018, 7,900. Collapse question part (a) Compute the amount of accumulated depreciation on each machine at December 31, 2018. MACHINE 1 MACHINE 2 MACHINE 3 Accumulated Depreciation at December 31 $ $ $
Explanation / Answer
For Machine 1 (Straight Line Method):
Purchase date Jan. 1, 2015
Cost of machine = $123000
Salvage value = $23000
Useful life = 10 years
So annual depreciation will be calculated as follow;
($123000 – $23000) / 10
= $10000 per year
As we know that annual depreciation under straight line method will be same so accumuated depreciation on December 31, 2018 will be ($10000 * 4) = $40000
Thus accumulated depreciation on Machine 1 on December 31, 2018 = $40000
For Machine 2 (Double decline method):
Purchase date July. 1, 2016
Cost of machine = $92500
Salvage value = $11400
Useful life = 5 years
So rate of depreciation will be calculated as follow;
1 / 5 = .2
(.2 * 2) = 40%
Now let’s calculate annual depreciation and accumulated depreciation;
Year
Value of Machine
Annual depreciation
Accumulated depreciation
2016
$92500
$92500 * .4 * 6 / 12 = $18500
$18500
2017
($92500 – $18500) = $74000
$74000 * .4 = $29600
$48100
2018
($74000 - $29600) = $44400
$44400 * .4 = $17760
$65860
Thus accumulated depreciation on December 31, 2018 = $65860
For Machine 3 (Units of Activity method):
Purchase date Nov. 1, 2016
Cost of machine = $75700
Salvage value = $6700
Useful life = 6 years
Total machine hour = 34500
So rate of depreciation will be calculated as follow;
($75700 – $6700) / 34500 = $2 per machine hour
Now let’s calculate annual depreciation and accumulated depreciation;
Year
Machine hours
Annual depreciation
Accumulated depreciation
2016
850 hours
(850 * 2) = $1700
$1700
2017
6200 hours
(6200 * 2) = $12400
$14100
2018
7900 hours
(7900 * 2) = $15800
$29900
Thus accumulated depreciation on December 31, 2018 = $29900
Year
Value of Machine
Annual depreciation
Accumulated depreciation
2016
$92500
$92500 * .4 * 6 / 12 = $18500
$18500
2017
($92500 – $18500) = $74000
$74000 * .4 = $29600
$48100
2018
($74000 - $29600) = $44400
$44400 * .4 = $17760
$65860
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