Problem 9-8A (Part Level Submission) In recent years, Carla Vista Co. has purcha

Question

Problem 9-8A (Part Level Submission) In recent years, Carla Vista Co. has purchased three machines. Because of frequent employee turnover in the accounting department, a different accountant was in charge of selecting the depreciation method for each machine, and various methods have been used. Information concerning the machines is summarized in the table below. Machine Acquired Cost Salvage Value Useful Life (in years) Depreciation Method 1 Jan. 1, 2015 $123,000 $43,000 8 Straight-line 2 July 1, 2016 76,000 10,700 5 Declining-balance 3 Nov. 1, 2016 76,800 6,800 6 Units-of-activity For the declining-balance method, Carla Vista Co. uses the double-declining rate. For the units-of-activity method, total machine hours are expected to be 35,000. Actual hours of use in the first 3 years were: 2016, 840; 2017, 3,700; and 2018, 4,900.

Explanation / Answer

Depreciation calculation

Machine 1

Method = straight line method

Cost = $123000

Salvage value = $43000

Estimated life = 8 years

Purchase date = January 1, 2015

Depreciation per year from 2015 to 2022 =

(cost - salvage value)/estimated life

Machine 2

Method = double declining method

Cost = $76000

Salvage value = $10700

Estimated life = 5 years

Purchase date = July 1, 2016

Straight line rate = 1/5 years = 20%

Double declining rate = 2 * 20% = 40%

2016

(6 months from july 1 to december 31

$15200

($76000 * 40% * 6/12)

$24320

($60800 * 40%)

$2433

(remaining balance of asset = $13133 - $10700)

Machine 3

Method of depreciation = Activity based method

Purchase date = November 1, 2016

Cost = $76800

Salvage value = $6800

Estimated life = 6 years

Total activity hours = 35000 hours

Depreciable amount = $76800 - $6800 = $70000

Depreciation

(Depreciable amount i.e. $70000 * Depreciation rate)

0.024

(840/35000)

0.1057

(3700/35000)

0.14

(4900/35000)

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