<p>On January 1, 2011, Locke Company, a small machine-tool manufacturer, acquire

Question

<p>On January 1, 2011, Locke Company, a small machine-tool manufacturer, acquired for $1,260,000 a piece of new industrial equipment. The new equipment had a useful life of 5 years, and the salvage value was estimated to be $60,000. Locke estimates that the new equipment can produce 12,000 machine tools in its first year. It estimates that production will decline by 1,000 units per year over the remaining useful life of the equipment. The following depreciation methods may be used: (1) straight-line; (2) double-declining-balance; (3) sum-of-the-years-digits; and (4) units-of-output.</p>
<p>(a)Prepare a 3 year schedule for the 4 methods&nbsp;</p>

Explanation / Answer

(1) 3 year schedule using straight-line method of dep.

dep each year will be= (1260000-60000)/5= $240000
year Dep cost
1 240000 1020000
2 240000 780000
3 240000 540000

(2) 3 year schedule using double-declining-balance

Depreciation Base * (2 * 100% / Useful Life of Asset in Years)

= [2x100/100]/5= .4

year Dep cost

1 (1200000x.4)= 480000 720000

2 (720000x.4)= 288000 432000

3 (432000x.4)= 172800 259200

(3) 3 year schedule using sum-of-the-years-digits

5 years useful life = 5+4+3 + 2 + 1 Sum of the years = 15

year % dep

1 5/15= 33.33%   33.33% x 1200000= $399960

2 4/15=26.67% 26.67% x 1200000= $320040

3 3/15= 20% 20% x 1200000= $243960

(4) 3 year schedule using units-of-output

First year production = 12,000 units
Second year production =(12000-1000)= 11,000 units

Third year production= 11000-1000= 10000 units.

Depreciation per unit = [Cost of asset - scrap value]/ Total estimated units of output

= [(1260000-60000)]/50000= 24

year    Total dep

1 12000x24= 288000

2 11000x24= 264000

3 10000x24= 240000

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