Sketches Inc. purchased a machine on January 1, 2016. The cost of the machine wa

Question

Sketches Inc. purchased a machine on January 1, 2016. The cost of the machine was $41,000. Its estimated residual value was $13,000 at the end of an estimated 5-year ife. The company expects to produce a total of 20,000 units. The company produced 1,500 units in 2016 and 1,950 units in 20117 Required: a. Calculate depreciaion expense for 2016 and 2017 using the straight-line method. 16 2017 Depreciation Expense Calculate the depreciation expense for 2016 and 2017 using the units-of-production method. (Do not b. round your intermediate calculations. Round your final answers to the nearest whole dollar) 016 2017 Depreciation Expense Calculate depreciation expense tor 2016 through 2020 using the method (Round your final answer to nearest dollar value c. balance 2016 2017 201 2019 2020 Depreciation Expense

Explanation / Answer

Depreciation is the periodic allocation of the cost of a tangible asset (other than land and natural resources) over the estimated useful life of the asset.

Depreciation is calculated by three methods known as Straight Line method, Production Method and Double-Declining Balance Method.

1.Depreciation through Straight Line Method

Now depreciation through straight line method would be calculated as follows:

29,800

2. Now depreciation through production method would be calculated as follows:

3.

Now depreciation through Double-Declining balance method would be calculated by applying a fixed rate to the carrying value (the declining balance) of machine purchased. Most common fixed rate is equal to twice the straight-line depreciation percentage.

In this case estimated useful life is 4 years so annual depreciation rate is 20 percent (100 percent / 4 years). Under double declining method fixed rate would be double of depreciation ate which is 40 percent. 40 percent rate will be applied to the carrying value of the machine to calculate depreciation each year.

Here depreciation will be charged for year 2016 and year 2017 till the carrying value is equal to residual value.

Depreciation Schedule Straight Line Method Bus 1 Cost Annual Dep. Acc. Dep. Carrying value 01-01-2016 41,000 - - 41,000 2016 41,000 (41,000-13,000)5 5,600 5600 35,400 2017 41,000 (41,000-13,000)5 5,600 11200

29,800

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