At the beginning of the year, Palermo Brothers, Inc., purchased a new plastic wa

Question

At the beginning of the year, Palermo Brothers, Inc., purchased a new plastic water bottle making machine at a cost of $78,000. The estimated residual value was $9,000. Assume that the estimated useful life was four years, and the estimated productive life of the machine was 690,000 units. Actual annual production was as follows Year Units 1 207,000 2 151,800 3 189,750 4 141,450 Required 1. Complete a separate depreciation schedule for each of the alternative methods a. Straight-line Depreciation Accumulated Net Year Expense Depreciation Book Value At acquisition 2 4

Explanation / Answer

Depreciation under straight line method (equal depreciation each year)

= (Purchase cost – Residual value) / Useful life

= ($78,000 - $9,000) / 4

= $ 17,250

The following table shows the depreciation schedule

Calculations A B = Cumulative A C = $78,000 - B Year Depreciation expense Accumulated depreciation Net book value At acquisition                         -                                  -                  78,000 1               17,250                      17,250                60,750 2               17,250                      34,500                43,500 3               17,250                      51,750                26,250 4               17,250                      69,000                   9,000

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