A machine costing $206,000 with a four-year life and an estimated $16,000 salvag

Question

A machine costing $206,000 with a four-year life and an estimated $16,000 salvage value is installed in Luther Company’s factory on January 1. The factory manager estimates the machine will produce 475,000 units of product during its life. It actually produces the following units: year 1, 121,600; year 2, 124,400; year 3, 120,900; and year 4, 118,100. The total number of units produced by the end of year 4 exceeds the original estimate—this difference was not predicted. (The machine must not be depreciated below its estimated salvage value.) Required: Compute depreciation for each year (and total depreciation of all years combined) for the machine under each depreciation method. (Round your per unit depreciation to 2 decimal places.) Complete Straight-Line Depreciation years 1-4 with depreciation expense and the total. (Table) Units of production table, Years 1-4, Depreciable units, Depreciation per unit, depreciation Expense, then totals. (Table) Lastly DDB Depreciation for the period (Table) Including Beginning of period book value, Depreciation Rate, Depreciation Expense, Accumulated Depreciation, Book Value.

Straight-Line Depreciation Depreciation Expense Year 4 Total Units of Production Depreciable Depreciation Depreciation per unit Year Units Expense 4 Total DDB Depreciation for the Period End of Period Beginning of Depreciation Depreciation Accumulated Expense Year Period Book Book Value Rate Depreciation Value 4

Explanation / Answer

SLM method :

Depreciation =(cost -salvage )/life in years

              = (206000 - 16000) / 4

                 = 190000 /4 = $ 47500 per year

Year 1    47500

Year 2    47500

Yera3     47500

year 4     47500

Method 2 ) Units of production method :

Rate per unit = (206000-16000) / 475000

                        = $ .40 per unit

Accu,ulated depreciation up to year 4= 48640+49760+48360 = 146760

Book value = 206000-146760 = 59240

Depreciation for year 4 = .40 * 118100 = 47240

If we charge depreciation of 47240 , book value at end will fall below estimated salvage = 59240-47240 = 12000 so depreciation will be restricted to (59240-16000) =43240

3)Double declining method :Rate = 2/ useful life = 2 /4 = .50 or 50%

Year Depreciation 1 .40 * 121600 48640 2 .40*124400 49760 3 .40*120900 48360 4 43240**

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