A company purchased furniture on January 1. Its cost was $7,800, and it had a re

Question

A company purchased furniture on January 1. Its cost was $7,800, and it had a residual value of $1,800. Its useful life is determined to be 8 years. Using double- declining balance depreciation, the depreciation for year I to the nearest dollar will be: A) $1,950. B) $1,500. C) $975 D) $750 Cesario Corporation purchases a machine for $62,500. It has an estimated salvage value of $5,000 and is expected to produce 50,000 units in its lifetime. During the first year of operation, it produced 15,000 units. To the nearest dollar, the depreciation for the first year under the units of production method will be: 13] A) $18,750. B) $15,625. C) $17,250. D) $14,375.

Explanation / Answer

Answer 2.

Cost of Furniture = $7,800
Salvage Value = $1,800
Useful Life = 8 years

Straight line Depreciation Rate = 1 / Useful Life
Straight line Depreciation Rate = 1 / 8
Straight line Depreciation Rate = 12.50%

Double declining Depreciation Rate = 2 * Straight line Depreciation Rate
Double declining Depreciation Rate = 2 * 12.50%
Double declining Depreciation Rate = 25.00%

Depreciation Year 1 = $7,800 * 25.00%
Depreciation Year 1 = $1,950

Answer 3.

Cost of Furniture = $62,500
Salvage Value = $5,000
Useful Life = 50,000 units

Depreciation per unit = (Cost of Furniture - Salvage Value) / Useful Life
Depreciation per unit = ($62,500 - $5,000) / 50,000
Depreciation per unit = $1.15

Number of units produced during first year = 15,000

Depreciation Year 1 = $1.15 * 15,000
Depreciation Year 1 = $17,250

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