Machine Acquired Cost Salvage Value Useful Life (in years) Depreciation Method A

Question

Machine

Acquired

Cost

Salvage
Value

Useful Life
(in years)

Depreciation
Method

A) Compute the amount of accumulated depreciation on each machine at December 31, 2015.

B) If machine 2 was purchased on April 1 instead of July 1, what would be the depreciation expense for this machine in 2013? In 2014?

In recent years, Farr Company has purchased three machines. Because of frequent employee turnover in the accounting department, a different accountant was in charge of selecting the depreciation method for each machine, and various methods have been used. Information concerning the machines is summarized in the table below.

Machine

Acquired

Cost

Salvage
Value

Useful Life
(in years)

Depreciation
Method

1 Jan. 1, 2012 $123,000 $39,000 8 Straight-line 2 July 1, 2013 73,000 11,500 5 Declining-balance 3 Nov. 1, 2013 98,220 8,620 7 Units-of-activity
For the declining-balance method, Farr Company uses the double-declining rate. For the units-of-activity method, total machine hours are expected to be 32,000. Actual hours of use in the first 3 years were: 2013, 770; 2014, 3,620; and 2015, 4,910.
  

Explanation / Answer

A) Machine 1 :Depreciation per year = (cost -salvage) /life

                                        = (123000-39000)/8

                                       = 10500 per year

years till 31 dec 2015 = 4 years

Accumulated depreciation = 10500 *4 = 42000

Machine 2 :

Rate of depreciation = 2 / life = 2/5 = .40 or 40%

machine 3 :

Depreciation per unit = (98220-8620)/32000 =2.8

Depreciation for 2013 = 770 *2.8 = 2156

2014 = 3620 * 2.8 = 10136

2015 = 4910 *2.8 = 13748

Total accumulated depreciation = 26040

B) 2013 : 73000 * .40 * 9 /12 = 21900

    2014 : (73000 -21900) *.40 = 20440

Year Beginning balance Depreciation Accumulated depreciation Balance at end 2013 73000 73000*.4*6/12 = 14600 14600 73000-14600 = 58400 2014 58400 58400*.4 = 23360 14600+23360=37960 58400 - 23360 = 35040 2015 35040 35040 *.4 = 14016 37960+14016= 51976 35040-14016= 21024 Accumulated depreciation till 2015 = 51976

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