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E10-6 Rottino Company purchased a new machine on October 1, 2017, at a cost of D

ID: 2589243 • Letter: E

Question

E10-6 Rottino Company purchased a new machine on October 1, 2017, at a cost of Detennine depreciation for $150,000. The company estimated that the machine will have a salvage value of $12,000. partial periods The machine is expected to be used for 10,000 working hours during its 5-year life. (LO 2) Instructions Compute the depreciation expense under the following methods for the year indicated. (a) Straight-line for 2017. (b) Units-of-activity for 2017, assuming machine usage was 1,700 hours. (c) Declining-balance using double the straight-line rate for 2017 and 2018. XLS

Explanation / Answer

(a)

Straight-line Method:

Annual depreciation = (Purchase cost – Salvage value)/No. of useful years

                                     = ($ 150,000 - $ 12,000)/5

                                     = $ 138,000/5 = $ 27,600

Depreciation expense for 2017 = $ 27,600 x 3/12 = $ 27,600 x 0.25

                                            = $ 6,900

(b)

Units-of-activity Method:

Depreciation per hour = (Purchase cost – Salvage value)/Total no. of usage hours of the asset

                                      = ($ 150,000 - $ 12,000)/10,000

                                     = $ 138,000/10,000 = $ 13.8 per hour

Depreciation for 2017 = $ 13.8 x 1,700 = $ 23,460

(c)

Double declining balance Method:

Straight-line Depreciation Rate = 1/5 =0.2 x 100 = 20 %

Depreciation for a period = 2 x Straight-line Depreciation Rate x Book Value at the Beginning of Period

Depreciation expense for 1st year [Oct’2017 to Oct’2018] = 2 x 20 % x $ 150,000

= 0.4 x $ 150,000 = $ 60,000

Depreciation expense for 2st year [Oct’2018 to Oct’2019] = 2 x 20 % x ($ 150,000 - $ 60,000)

= 0.4 x $ 90,000 = $ 36,000

Depreciation expense for 2017 = $ 60,000 x 3/12 = $ 60,000 x 0.25 = $ 15,000

Depreciation expense for 2018:

Depreciation expense From Jan 2018 to Sept 2018 = $ 60,000 x 9/12 = $ 60,000 x 0.75 = $ 45,000

Depreciation expense From Oct 2018 to Dec 2018 = $ 36,000 x 3/12 = $ 36,000 x 0.25 = $ 9,000

Depreciation expense for 2018 = $ 45,000 + $ 9,000 = $ 54,000