A company purchased a machine on August 7, 2017 for $72,000. The machine has an

Question

A company purchased a machine on August 7, 2017 for $72,000. The machine has an estimated residual value of $12,000 and an estimated useful life of 5 years or 3,000,000 units. The machine was used to produce 200,000 units in 2017 and 300,000 units in 2018.

Required:

Compute depreciation expense on the machine for 2017 and 2018, assuming that the company uses the following independent depreciation methods:

a. Straight line

b. Double declining-balance

c. Units of activity

Please show all work and explanations.

Explanation / Answer

Compute depreciation expense on the machine for 2017 and 2018, assuming that the company uses the following independent depreciation methods:

Straight line = (72000-12000/5) = 12000 per year

2017 dep = 12000*5/12 = 5000

2018 dep = 12000

Double decline balance :
Straight line dep = 100/5 = 20%

Double decline rate = 20*2 = 40%

2017 dep = 72000*40%*5/12 = 12000

2018 dep = 72000*40%*7/12+72000*60%*40%*5/12 = 24000

Unit of activity :

Dep rate = (72000-12000)/3000000 = 0.02 per unit

2017 dep = 200000*.02 = 4000

2018 dep = 300000*.02 = 6000

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