Watery purchased a new machine. The new machine cost $120,000 including installa
ID: 2372394 • Letter: W
Question
Watery purchased a new machine. The new machine cost $120,000 including installation. The company estimates the equipment will have a residual value of $30,000. watery also estimates it will use the machine for four years or about 8,000 total hours. Actual use per year was as follows:Year Hours Used
1 2,500
2 2,200
3 1,900
4 2,000
Prepare a depreciation schedule for four years using the double-declining-balance method and the activity-based method.
Allocation base - Depreciation Rate - Depreciation Expense - Accumulated Depreciation - Book Value
1
2
3
4
Can you show work and help me how to solve this answer thanks in advance
Explanation / Answer
For double declining balance, since useful life is 4 years, straight line rate is 100%/4 = 25%. Double declining balance rate is twice the straight line rate, so it is 50%. For double declining balance, the residual value is not taken into consideration. However, the asset is never depreciated below its residual value. In this case, the depreciation in year 2 reduces the asset to its residual value, so no more depreciation can be taken.
Year
Allocation base
dpr rate
Dpr expense
Accum dpr
Book value
1
120,000
0.50
60,000*
60,000
60,000
2
60,000**
0.50
30,000***
90,000
30,000
3
0
90,000
30,000
4
0
90,000
30,000
*120,000*0.50 = 60,000
**Just the ending book value of the previous year.
***60,000*0.50 = 30,000
For activity based method, take cost minus residual value and divide by the estimated machine hours: (120,000 – 30,000)/8000 = $11.25 per machine hour
Year
Allocation base
Dpr rate
Dpr expense
Accum dpr
Book value
1
2,500 hours
$11.25/hr
28,125*
28,125
91,875
2
2,200 hours
$11.25/hr
24,750**
52,875
67,125
3
1,900 hours
$11.25/hr
21,375***
74,250
45,750
4
2,000 hours
$11.25/hr
15,750****
90,000
30,000
*2,500*11.25 = 28,125
**2,220*11.25 = 24,750
***1,900*11.25 = 21,375
****cannot depreciate go below residual value
Year
Allocation base
dpr rate
Dpr expense
Accum dpr
Book value
1
120,000
0.50
60,000*
60,000
60,000
2
60,000**
0.50
30,000***
90,000
30,000
3
0
90,000
30,000
4
0
90,000
30,000
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