Kelm Company purchased a new machine on October 1, 2012, at a cost of $120,000.T
ID: 2346320 • Letter: K
Question
Kelm Company purchased a new machine on October 1, 2012, at a cost of $120,000.The company estimated that the machine will have a salvage value of $12,000. The machine is expected to be used for 10,000 working hours during its 5-year life.Instructions
Compute the depreciation expense under the following methods for the year indicated.
Straight-line for 2012.
$
Units-of-activity for 2012, assuming machine usage was 1,700 hours. (Round unit price per hour to 2 decimal places, e.g. 10.50.)
$
Declining-balance using double the straight-line rate for 2012 and 2013.
2012 $
2013 $
Explanation / Answer
Straight line Each year depreciation = $(120000-12000)/5 = $21,600 So for period of 1 October to 31st December Depreciation = 3/12 * 21600 = $5400 Usage basis Depreciation = 1700/10000 * (120000-12000) = $18,360 Double Declining Each year depreciation = 2/5 = 40% So, for 1st year dep value = 120000 * 40% = $48000 So for 2012, dep value = $48000/4 = $12000 for 2013, remaining balance = 120000 - 12000 -12000 = 96000 dep value = 40% * 96000 = $38400
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