On Jan 1, A company purchased a machine for 80,000. The estimated life of the ma
ID: 2381820 • Letter: O
Question
On Jan 1, A company purchased a machine for 80,000. The estimated life of the machine was 8 years and the estimated salvage value was $6,000. The machine had an estimated useful life in productive output of 110,000 units. Actuals output for the first two years was: yr 1, 15,000 units and yr 2, 13,000 units.
Compute the amount of depreciation for the first year for each following method: Straight line, Units-of Prodcution,Sum-of-year-units, and double-declining-balance ?
What was the book value of the machine at the end of the first year, assuming straight-line method was used ?
If the machine is sold at the end of 5th year for 28,500, how much should the company report as a gain or loss(assuming styraight-line) ?
Explanation / Answer
On Jan 1, A company purchased a machine for 80,000. The estimated life of the machine was 8 years and the estimated salvage value was $6,000. The machine had an estimated useful life in productive output of 110,000 units. Actuals output for the first two years was: yr 1, 15,000 units and yr 2, 13,000 units.
Compute the amount of depreciation for the first year for each following method:
Straight line,
Depreciation = (80000-6000)/8 = $ 9250
Units-of Prodcution,
Depreciation = (80000-6000)/110000 *15000 = $ 10090.91
Sum-of-year-units,
Depreciation = (80000-6000) *8/36 = $ 16444.44
Double-declining-balance
Depreciation rate = 1/8*2 = 25%
Depreciation = 80000*25% = $ 20000
What was the book value of the machine at the end of the first year, assuming straight-line method was used ?
Book Value at the end of 1st year = 80000-9250 = $ 70750
If the machine is sold at the end of 5th year for 28,500, how much should the company report as a gain or loss(assuming styraight-line) ?
Book value at the end of 5th year = 80000- 9250*5 = 33750
Company should report as a loss = 33750 - 28500 = $ 5250
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