1. A machine costing $24,000 with a four-ycar life and an estimated $4,000 salva
ID: 2589811 • Letter: 1
Question
1. A machine costing $24,000 with a four-ycar life and an estimated $4,000 salvage value is installed on January 1. The manager estimates the machine will produce 1,000 units of product during its life. It actually produces the following units: 200 in Ist year, 400 in 2nd year, 300 in 3rd year, 250 in 4th year. (12 points) Required: Calculate the depreciation expenses for each year by using the Straight-Line, Units-of Production, and Double-Declining-Balance methods. Place your answers in the blanks provided. If the answer is zero, plcase wric a zero (0) in the blank ypace. Depreciation Expense Method Year Straight-Line Units-of Production Double-Declining-Balance 4Explanation / Answer
Solution:
Cost of machine = $24,000
Salvage Value = $4,000
Life = 4 Years
Depreciation under SLM = (24000-4000)/4 = $5,000 each year
Depreciation Rate = 5000/20000 = 25%
Therefore depreciation rate under double declining balance method will be = 50%
Depreciation for each year under Double declining method:
Year 1 = 24000*50% = $12000, Book Value = $24000 - $12,000 = $12,000
Year 2 = 12000*50% = $6,000, Book Value = $12000 - $6000 = $6,000
Year 3 = $6000 - $4000 = $2,000, Book Value = $6000 - $2000 = $4,000
Year 4 = 0 (As book value is equivalent to Salvage Value) , Book Value = $4,000
Machine Production during its life = 1000 Units
Depreciation per unit = (24000-4000)/1000 = $20 per unit
Depreciation for each year under Units of Production Method:
Year 1 = 200*20 = $4,000
Year 2 = 400*20 = $8,000
Year 3 = 300*20 = $6,000
Year 4 = $20000 - $4,000 - $8,000 - $6,000 = $2,000
Table:
Depreciation Expense Year SLM Unit of Production Double Declining Balance 1 $5,000 $4,000 $12,000 2 $5,000 $8,000 $6,000 3 $5,000 $6,000 $2,000 4 $5,000 $2,000 0Related Questions
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