Depreciation Methods On January 2, 2015, Alvarez Company purchased an electropla

Question

Depreciation Methods

On January 2, 2015, Alvarez Company purchased an electroplating machine to help manufacture a part for one of its key products. The machine cost $218,700 and was estimated to have a useful life of six years or 781,200 platings, after which it could be sold for $23,400.

Required

a. Calculate each year’s depreciation expense for the period 2015-2020 under each of the following depreciation methods (round all answers to the nearest dollar):

1. Straight-line.
2. Double-declining balance.
3. Units-of-production. (Assume annual production in platings of 140,000; 180,000; 150,000; 125,000; 105,000; and 81,200.)

1. Straight-Line

2. Double-declining balance

3. Units of Production

b. Assume that the machine was purchased on September 1, 2015. Calculate each year’s depreciation expense for the period 2015-2021 under each of the following depreciation methods:

1. Straight-line.
2. Double-declining balance.

1. Straight-Line

2. Double-declining balance

Year Depreciation
Expense 2015 $Answer 2016 Answer 2017 Answer 2018 Answer 2019 Answer 2020 Answer

Explanation / Answer

Solution a:

Cost of Machine = $218,700

Salvage value = $23,400

Depreciable cost = $218,700 - $23,400 = $195,300

Annual depreciation - Straigh line method = $195,300 / 6 = $32,550

Depreciation rate - SLM = $32,550 / $195,300 = 16.6666%

Depreciation rate - double declining method = 16.6666%*2 = 33.3333333%

Solution b:

Depreciation Schedule - Straight Line Method - Alvarez Company Year Depreciation Expense Accumulated Depreciation Net Book Value Acquisition date - 02.01.2015 $218,700.00 2015 $32,550.00 $32,550.00 $186,150.00 2016 $32,550.00 $65,100.00 $153,600.00 2017 $32,550.00 $97,650.00 $121,050.00 2018 $32,550.00 $130,200.00 $88,500.00 2019 $32,550.00 $162,750.00 $55,950.00 2020 $32,550.00 $195,300.00 $23,400.00

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