At the beginning of the year, Palermo Brothers, Inc., purchased a new plastic wa

Question

At the beginning of the year, Palermo Brothers, Inc., purchased a new plastic water botie making machine at a cost of $44,000. The estimated residual value was $5.000. Assume thet the estimatad usetul ife was four years, and the estmated productive life of the machine was 390,000 units. Actual annual production was as follows Year Units 1 117,000 2 85,800 3 107 250 4 79.950 1. Complete a separete depreciation schedule for each of the altemative methods. Year Book Value At acquaition 9,750 $ 9,750 $ 9.750 $ 9,750 $ 9.750 S 19.500 S 29.250S 39.000S 34.2 24.500 14.7 Year Book Value At acqu sition 11,700 3 8,580 $ 10,725 S 7.996 $ 11,700 S 20.280 S 31,005 S 39000 S 23,720 12.995 Year Book Value At acqu sition

Explanation / Answer

DEPRECIATION USING DOUBLE DECLINING METHOD YEAR DEPRECIATION EXPENSE ACCUMULATED DEPRECIATION NET BOOK VALUE Remarks I 22000 22000 22000 Applying 50% (being double of the rate of 25%) II 11000 33000 11000 50% rate of depreciation on cost reduced by accumulated depreciation III 5500 38500 5500 50% rate of depreciation on cost reduced by accumulated depreciation IV 500 39000 5000 Depreciation would be 2750 but the depreciation expense would be allowd upto where book value = salvage value NOTES: The straight line mehtod provides depreciation of $ 9750 each year Cost is $ 44000 Residual Value $ 5000 Straight line depreciation rate is 25% (1 divided by 4 - number of years)

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