Question 2) Megan Company purchased a new machine on May 1, 2016, at a cost of $

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Question 2) Megan Company purchased a new machine on May 1, 2016, at a cost of $131,000. The company estimated that the machine has a salvage value of $51,515, is expected to be used for 88,316 working hours, and will have a 7-year life. Instructions A) Compute the depreciation expense under the straight-line method for 2016, 2020, and 2023 B) Compute the depreciation expense under the double-declining balance method for 2016 and 2017 C) Compute the depreciation expense under the units-of-activity method for 2016, assuming machine assuming a December 31 year-end. Assume the DDB rte is 100% 17 years 14.29% usage was 4,444 hours. (record depreciation per unit to the nearest cent.)

Explanation / Answer

A) Straight line depreciation per year = (Cost-Salvage value)/Life in years = (131000-51515)7 = $      11,355 Depreciation for 2016 = 11355*8/12 = $         7,570 Depreciation for 2020 $      11,355 Depreciation for 2023 = 11355*4/12 = $         3,785 B) Depreciation for 2016 = 131000*14.29%*8/12 = $      12,480 Depreciation for 2017 = 131000*14.29% = $      18,720 C) Depreciation rate = (Original Cost-Salvage Value)/Expected working hours = (131000-51515)/88316 = $           0.90 Depreciation = 4444*0.90 = $         4,000

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