At the beginning of the year, Palermo Brothers, Inc., purchased a new plastic wa

Question

At the beginning of the year, Palermo Brothers, Inc., purchased a new plastic water bottle making machine at a cost of $62,000. The estimated residual value was $7,000 Assume that the estimated useful life was four years, and the estimated productive life of the machine was 550,000 units. Actual annual production was as follows: Year Units 1 165,000 2 121,000 3 151,250 4 112,750 Required 1. Complete a separate depreciation schedule for each of the alternative methods. a. Straight-line. Year Expense Depreciation Book Value At acquisition b. Units-of-production Year Expense Depreciation Book Value At acquisition c. Double-declining-balance. Year Expense Depreciation Book Value At acquisition

Explanation / Answer

DEPRECIATION SCHEDULE FOR EACH METHOD:

a. Straight-line

Depreciation each year = 62,000 - 7,000 / 4 = $13,750

b. Units-of-production

Machine's Depreciable cost is (62,000-7,000) = $55,000 which is divided by total 550,000 units resulting in depreciation of $0.1 per unit.

c. Double - declining balance

Depreciation rate = 1/Useful life * 200% = 1/4 * 200% =50%

In the last year, depreciation is charged only to the extent of bringing the net book value to its salvage value.

Year Depreciation Expense Accumulated Depreciation Net Book Value At acquisition NIL NIL 62,000 1 13,750 13,750 48,250 2 13,750 27,500 34,500 3 13,750 41,250 20,750 4 13,750 55,000 7,000

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