In recent years, Farr Company has purchased three machines. Because of frequent

Question

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       SalvageValue      Useful Life(in years)    Depreciation Method

     1     Jan. 1, 2012    $138,000     $53,200                      8                                 Straight-line

     2      July 1, 2013     94,000        10,700                       5                                 Declining-balance

     3      Nov. 1, 2013    107,920        7,120                       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 36,000. Actual hours of use in the first 3 years were: 2013, 700; 2014, 5,240; and 2015, 6,750.

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

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

Please show work so I can have a better understanding. Thanks

Explanation / Answer

1) Machine 1 Straight Line Cost 138000 Salvage Value 53200 Useful Life 8 Depriciation per year ( 138000- 53200) /8 = Depriciation Accumulated Depriciation 12/13/12 10600 10600 12/13/13 10600 21200 12/13/14 10600 31800 12/13/15 10600 42400 Machine 2 Double Declining Method Cost 94000 Salvage Value 10700 Useful Life 5 SL Depriciation 94000/5*100 = 18800 SL Depriciation Rate 18800/94000*100 20% Double Declining Method ( ceases when book balance = salvage value)                 = 2 * SL Depriciation rate * Book value at the beginning of the year Net Book Value beginning of the year Double declining balance depriciation ( 2 * SL Rate * Beginning NBV) Accumulated Depriciation NBV end of the year 7/1/13 94000 18800 18800 75200 6 months depriciation 12/13/13 75200 30080 48880 45120 12/13/14 45120 18048 66928 27072 12/13/15 27072 10828.8 77756.8 16243.2 Machine 3 Units of activity Cost 107920 Salvage Value 7120 Useful Life 36000 machine hours Depriciation is calculated per machine hour = (107920 - 7120) /36000= 2.80 Machine hours Depriciation = Machine hours * Rate Accumulated Depriciation 12/13/13 700 1960 1960 12/13/14 5240 14672 16632 12/13/15 6750 18900 35532 2) Machine 2 Double Declining Method Cost 94000 Salvage Value 10700 Useful Life 5 SL Depriciation 94000/5*100 = 18800 SL Depriciation Rate 18800/94000*100 = 20% Double Declining Method ( ceases when book balance = salvage value)                 = 2 * SL Depriciation rate * Book value at the beginning of the year Net Book Value beginning of the year Double declining balance depriciation ( 2 * SL Rate * Beginning NBV) Accumulated Depriciation NBV end of the year 4/1/13 94000 28200 28200 65800 for 9 months depriciation 12/13/13 65800 26320 54520 39480 12/13/14 39480 15792 70312 23688 12/13/15 23688 9475.2 79787.2 14212.8

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