Hinshaw Company purchased a new machine on October 1, 2014, at a cost of $86,270
ID: 2451201 • Letter: H
Question
Hinshaw Company purchased a new machine on October 1, 2014, at a cost of $86,270. The company estimated that the machine has a salvage value of $8,280. The machine is expected to be used for 61,120 working hours during its 8-year life. Compute depreciation using the following methods in the year indicated. Declining-balance using double the straight-line rate for 2014 and 2015. (Round answers to 0 decimal places, e.g. 125) Depreciation using the Declining-balance method 2014 $ 2015 $ Calculate the depreciation cost per hour. (Round answer to 2 decimal places, e.g. $6.25) Depreciation cost per hour $ per hour Units-of-activity for 2014, assuming machine usage was 4,350 hours. (Round answer to 0 decimal places, e.g. 125) Depreciation using the Units-of-activity method for 2014 $Explanation / Answer
1)
The asset has been purchased on October 2014. So it has been used for less than 6 months in the year 2014. Applying the half year convention the depreciation under the double dclining method would be charged for half year.
The depreciation rate under the double dclining method = (1/ recovery period) x 200% = (1/8) x 200 5 = 25%
Depreciation for the 2014 = (1/2) of ($86270 * 25%) = $ 10784 (rounded to 0 decimal places)
Depreciation base for the year 2015 = $86270 - $10784 = $75486
Depreciation for the year 2015 = 25% of $75486 = $18872 (rounded to 0 decimal places)
2)
Total number of hours the machine will work = 61,120 hours
Depreciable value of the machine = cost - salvage value = $86270 - $8280 = $77990
Depreciation per hour = $77990 / 61120 hours = $1.28 per hour
Deprication for the year 2014
= Number of hours worked x Depreciation per hour
= 4350 hours x $1.28 / hour
= $5568
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