25. Sellers Company purchased a new machine on January 1, 2011, at a cost of $30

Question

25. Sellers Company purchased a new machine on January 1, 2011, at a cost of $300,000. The machine is expected to have an eight-year life and a $30,000 salvage value. The machine is expected to produce 720,000 finished products during its eight-year life. Production during 2011 was 70,000 units and duri 2012 was 110,000 units. Required: Determine the amount of depreciation expense to be recorded on the machine for the vears 2011 and 2012 under each of the following methods: 1) Straight-line 2) Units of production 3) Double-declining balance

Explanation / Answer

Calculate depreciation expenses :

1) Straight line dep = (original cost-salvage value)/estimated life

= (300000-30000)/8

Straight line dep = 33750

2011 dep = $33750

2012 dep = $33750

2) Unit of production = (original cost-salvage value)/estimated production

= (300000-30000)/720000

Dep rate = 0.375 unit

2011 dep = 0.375*70000 = 26250

2012 dep = 0.375*110000 = 4125

3) Double declining balance :

Straight line rate = 100/8=12.5%

Double decline rate = 12.5*2=25%

2011 dep = 300000*25% = 75000

2012 dep = 300000*75%*25% = 56250

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