Explanation Depreciation expense: Depreciation expense is a non-cash expense, which is recorded on the income statement reflecting the consumption of economic benefits of long-term asset on account of its wear and tear or obsolescence. Straight-line depreciation method: The depreciation method which assumes that the consumption of economic benefits of long-term asset could be distributed equally throughout the useful life of the asset is referred to as straight-line method. Units-of-production method: The depreciation method which assumes that the consumption of economic benefits of long-term asset is based on the production capacity or output is referred to as units-of-production method. Double-declining-balance method: The depreciation method which assumes that the consumption of economic benefits of long-term asset is high in the early years but gradually declines towards the end of its useful life is referred to as double-declining-balance method. Working Notes: Compute the depreciation expense per year using straight-line method. Depreciation = Acquisition cost − Salvage value Useful life = $257,500 − $20,000 4 years = $ 59 , 375 (1) Note: The depreciation expense under the straight-line method is same for every year. Compute depreciation per unit. Depreciation per unit = Asset cost – Residual value Estimated units of total production = $257,500–$20,000 475 , 000 units = $237,500 475 , 000 units = $0 .50 per unit (2) Prepare depreciation schedule under units-of-production method for Year 1 to Year 3. Year Depreciation per unit (A) (2) Units (B) Depreciation expense ($) ( ( C ) = ( A ) × ( B ) ) 1 $0.50 220,000 110,000 2 $0.50 124,600 62,300 3 $0.50 121,800 60,900 Table (2) …… (3) Compute depreciation expense on Year 4 under units-of-production method. Depreciation on Year 4 = ( Asset cost–Residual value − Accumulated depreciation in Year 4 ) = $257,500–$20,000– ( $110,000+62,300+60,900 ) = $ 237 , 500 − $ 233 , 200 = $ 4 , 300 (4) Prepare depreciation schedule under double-declining-balance (DDB) method

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ISBN: 9781260158601

Author: Wild

Publisher: MCG

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Chapter 10, Problem 2AP

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Prepare a table and compute depreciation of the machine for each year under each depreciation method.

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A machine costing $257,500 with a four-year life and an estimated $20,000 salvage value is installed in Luther Company’s factory on January 1. The factory manager estimates the machine will produce 475,000 units of product during its life. It actually produces the following units: 220,000 in 1st year, 124,600 in 2nd year, 121,800 in 3rd year, 15,200 in 4th year. The total number of units produced by the end of year 4 exceeds the original estimate—this difference was not predicted. (The machine must not be depreciated below its estimated salvage value.) Required: Compute depreciation for each year (and total depreciation of all years combined) for the machine under each depreciation method. (Round your per unit depreciation to 2 decimal places.)

A machine costing $257,500 with a four-year life and an estimated $20,000 salvage value is installed in Luther Company’s factory on January 1. The factory manager estimates the machine will produce 475, 000 units of product during its life. It actually produces the following units: 220,000 in 1st year, 124,000 in 2nd year, 121,800 in 3rd year, 15,200 in 4th year. The total number of units produced by the end of year 4 exceeds the original estimate—this difference was not predicted. (The machine must not be depreciated below its estimated salvage value.) Required: Prepare a table with the following column headings and compute depreciation for each year (and total depreciation of all years combined) for the machine under each depreciation method.

A machine costing $215,200 with a four-year life and an estimated $18,000 salvage value is installed in Luther Company's factory on January 1. The factory manager estimates the machine will produce 493,000 units of product during its life. It actually produces the following units: 122,300 in Year 1, 124,000 in Year 2, 120,100 in Year 3, 136,600 in Year 4. The total number of units produced by the end of Year 4 exceeds the original estimate-this difference was not predicted. Note: The machine cannot be depreciated below its estimated salvage value. Required: Compute depreciation for each year (and total depreciation of all years combined) for the machine under each depreciation method. Note: Round your per unit depreciation to 2 decimal places. Round your answers to the nearest whole dollar. Complete this question by entering your answers in the tabs below. Straight Line Units of Production Compute depreciation for each year (and total depreciation of all years combined) for the machine…

Chapter 10 Solutions

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Prepare a table and compute depreciation of the machine for each year under each depreciation method.

Solution Summary: The author explains how to compute depreciation of the machine for each year using the straight-line method and the double-declining-balance method.

Prepare a table and compute depreciation of the machine for each year under each depreciation method.

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Chapter 10 Solutions