Exercise 9-6 Rottino Company purchased a new machine on October 1, 2017, at a co

Question

Exercise 9-6 Rottino Company purchased a new machine on October 1, 2017, at a cost of $116,000. The company estimated that the machine will have a salvage value of $11,000. The machine is expected to be used for 10,000 working hours during its 4-year life. Compute the depreciation expense under straight-line method for 2017. (Round answer to o decimal places, e.g. 2,125.) 2017 Depreciation expenses Compute the depreciation expense under units-of-activity for 2017, assuming machine usage was 1,670 hours. (Round depreciation cost per unit to 2 decimal places, e.g. 0.50 and depreciation rate to 0 decimal places, e.g. 15%. Round final answer to 2 decimal places, eg. 2,125.25.) 2017 Depreciation expense Compute the depreciation expense under declining-balance using double the straight-line rate for 2017 and 2018. (Round answers to O decimal places, e.g. 2,125.) 2017 2018 Depreciation expense

Explanation / Answer

Depreciation under straight line method

= (Purchase cost – Salvage value) / Useful life x Number of months used / 12 months

Number of months used in 2017

= October 1, 2017 to December 31, 2017

= 3 months

So, Depreciation for 2017

= ($116,000 - $11,000) / 4 x 3 / 12

= $ 6,563

Depreciation under units of activity method

= (Purchase cost – Salvage value) / Useful life in hours x Number of hours used

= ($116,000 - $11,000) / 10,000 x 1,670

= $17,535

Depreciation under double declining balance method

= Balance of Machine at the beginning of the year x Double declining rate x Months used / 12 months

Double declining rate

= 1 / Useful life x 2

= 1 / 4 x 2

= 0.50 or 50%

So, Depreciation for 2017

= $116,000 x 50% x 3 / 12

= $14,500

Balance of machine at the beginning of 2018

= Balance at beginning of 2017 – Depreciation for 2017

= $116,000 - $14,500

= $101,500

So, Depreciation for 2018

= $101,500 x 50% x 12 / 12

= $50,750

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