On 1/1/2010, a machine was purchased for $90,000. The machine has an estimated s

Question

On 1/1/2010, a machine was purchased for $90,000. The machine has an estimated salvage value of $6,000 and an estimated useful life of 5 years. The machine can operate for 100,000 hours before it needs to be replaced. The company closed its books on December 31, 2010 and operates the machine as follows: 2010- 20,000 hrs; 2011- 25,000 hrs; 2012- 15,000 hrs; 2013- 30,000 hrs; 2014 - 10,000 hrs. Instructions: Using the chart on the left, (a) Compute the annual depreciation charges over the machine's life assuming a December 31 year-end for each of the following depreciation methods. (1) Straight Line method. (2) Activity Method. (3) Sum of the years' digits method. (4) Double Declining balance method (b) Assume a fiscal year end of September 30. Compute the annual depreciation charges over the machine's life for each of the following depreciation methods. (1) Straight Line method. (2) Activity Method. (3) Sum of the years' digits method. (4) Double Declining balance method

Explanation / Answer

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2 Activity Method year 2 = 16,800
$84,000 / 100,000 = $0.84/hour used year 3 = 16,800
2008= 20,000 X $0.84= $16,800 year 4 = 16,800
2009= 25,000 X $0.84 = $21,000 year 5 = 16,800
2010= 15,000 X $0.84 = $12,600
2011= 30,000 X $0.84 = $25,200 sum of years digits method
2012= 10,000 X $0.84 = $8,400 year depreciation base remaining life depr. Factor depr. Exp book value
1 84,000 5 1/3 21,000 69,000

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Sum of the years digits method 2 84,000 4 4/15 22,400 46,600
year depreciation base remaining life depr. Factor depr. Exp book value 3 84,000 3 1/5 16,800 29,800
1 84,000 5 1/3 28,000 62,000 4 84,000 2 2/15 11,200 18,600
2 84,000 4 4/15 22,400 39,600 5 84,000 1 1/15 5,600 13,000
3 84,000 3 1/5 16,800 22,800
4 84,000 2 2/15 11,200 11,600 double declining balance method
5 84,000 1 1/15 5,600 6,000 straight line rate = 20%; double declining rate = 40%
year book value rate of declining Depr. Expense "balance
accum. Depr" "book value
year end"

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double declining balance method 1 90,000 40% 27,000 27,000 63,000
straight line rate = 20%; double declining rate = 40% 2 63,000 40% 25,200 52,200 37,800
year book value rate of declining Depr. Expense "balance
accum. Depr" "book value
year end" 3 37,800 40% 15,120 67,320 22,680
1 90,000 40% 36,000 36,000 54,000 4 22,680 40% 9,072 76,392 13,608
2 54,000 40% 21,600 57,600 32,400 5 13,608 40% 5,443 81,835 8,165
3 32,400 40% 12,960 70,560 19,440
4 19,440 40% 7,776 78,336 11,664
5 11,664 40% 4,666 83,002 6,998

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