Depreciation EXERCISE Indicate the best answer for each question in the space pr

Question

Depreciation EXERCISE Indicate the best answer for each question in the space provided Use the following data for the four independent questions which follow: On May 5, 2009. Lloyd purchased a machine for $84,000. The estimated life of the machine was 10 years, with an estimated residual value of $10,000 The service life in terms of "output" is estimated at 8,000 hours of operation Refer to the above data Assume Lloyd uses straight-line deprecation with the half-year convention Depreciation expense to be recognized in 2009 (the year of purchase) is: $7,400 $8,400 $3,700 Some other amount Refer to the data above. Assume Lloyd uses 200%-declining-balance depreciation with the half-year convention Depreciation expense to be recognized in 2010 (the second year of ownership) is $8,400 $13,120 $15,120 Some other amount Refer to the data above. Assume Lloyd uses 150% declining-balance deprecation with the half-year convention Depreciation expense to be recognized in 2009 (the year of purchase) $8,400 $6,300 $12,600 Some other amount Refer to the data above. Assume Lloyd uses the units-of output method and that the machine was in operation for 1,000 hours in 2009 and 1,800 hours in 2010 The book value of the machine at December 31, 2010 is: S48.IOO $58,100 $25,900 Some other amount

Explanation / Answer

Solution:

1. c. $3,700.

Straight-line depreciation with half yr convention = (Purchase Price - Salvage Value) / Estimated Life * 0.5

Straight-line depreciation with half yr convention

= ($84,000 - $10,000) / 10 * 0.5

= $3,700.

2. c. $15,120.

200% Declining Balance = Book Value * (1/Estimated Life) * 2

Depreciation for 2009 (with half yr convention) = $84,000 * (1/10) * 2 * 0.5 = $8,400

Depreciation for 2010 = ($84,000 - $8,400) * (1/10) * 2 = $15,120

3. b.$6,300.

150% Declining Balance = Book Value * (1/Estimated Life) * 1.5

Depreciation for 2009 (with half yr convention) = $84,000 * (1/10) * 1.5 * 0.5 = $6,300

4. a.$48,100.

Cost per hour = (Purchase Price - Salvage Value) / Estimated Hours

Cost per hour = ($84,000 - $10,000) / 8,000 = $9.25

Estimated Hours of Operation Left as on 31 Dec, 2010 = 8,000 - 1,000 - 1,800 = 5,200

Book Value as on 31 Dec, 2010 = 5,200 * $9.25 = $48,100.

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