A machine costing $211,000 with a four-year life and an estimated $19,000 salvag

Question

A machine costing $211,000 with a four-year life and an estimated $19,000 salvage value is installed in Luther Company’s factory on January 1. The factory manager estimates the machine will produce 480,000 units of product during its life. It actually produces the following units: 121,600 in 1st year, 124,200 in 2nd year, 120,100 in 3rd year, 124,100 in 4th year. The total number of units produced by the end of year 4 exceeds the original estimate—this difference was not predicted. (The machine must not be depreciated below its estimated salvage value.)

Required: Compute depreciation for each year (and total depreciation of all years combined) for the machine under each depreciation method. (Round your per unit depreciation to 2 decimal places. Round your answers to the nearest whole dollar.)

A.) STRAIGHT-LINE DEPRECIATION

Year 1 Depreciation Expense: ________

Year 2 Depreciation Expense: ________

      Year 3 Depreciation Expense: ________

      Year 4 Depreciation Expense: ________

TOTAL: ___________

B.)   UNITS OF PRODUCTION

C.) DDB Deprecation for the Period    | End of Period   

Year Depreciable Units Depreciation per unit Depreciation Expense 1 2 3 4 Total:

Explanation / Answer

A.) STRAIGHT-LINE DEPRECIATION Year 1 Depreciation Expense: $48,000 Year 2 Depreciation Expense: $48,000 Year 3 Depreciation Expense: $48,000 Year 4 Depreciation Expense: $48,000 TOTAL: $ 192,000 Formula = Purchase value of Asset - Salvage of Asset / Life of Asset = ($ 211,000-19,000)/4 =$ 48,000 B.) UNITS OF PRODUCTION Year Depreciable Units Depreciation per unit Depreciation Expense 1 121600 0.40 48640 2 124200 0.40 49680 3 120100 0.40 48040 4 124100 0.37 45640* Total: 490000 192000 Depreciable Base = Asset Cost - Salvage Value.                     = $ 211,000 - $19,000 = $192,000 Depreciation per unit = Depreciable Base / Total estimated units of Production           =$ 192,000/ 480,000 Units = $ 0.4 per unit Depreciation for Period = Depreciation per unit x Number of units in a Period. * In last year , Depreication should be adjusted to maximum of total depreciation of$192,000 C.)   DDB Deprecation for the Period    |   End of Period      Year Beginning of Period Book Value Depreciation Rate (%) Depreciation Expense Accumulated Depreciation Book Value 1 211000 50% 105500 105500 105500 2 105500 50% 52750 158250 52750 3 52750 50% 26375 184625 26375 4 26375 50% 7375 * 192000 19000 192000 * $ 26,375 -$19,000 Depreciation formula under double decline method = 2 × Straight-line depreciation rate × Book value of Asset Straight Line Depreciation rate = 1/4 = 25% In last year , Depreication should be adjusted to maximum of total depreciation of $192,000

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