Springfield Corporation purchases a new machine on March 3, Year One, for $35,60

Question

Springfield Corporation purchases a new machine on March 3, Year One, for $35,600 in cash. It pays an additional $3,400 to transport and set up the machine. Springfield’s accountant determines that the equipment has no residual value and that the useful life is five years. It is expected to generate 2.4 million units during its life. If applicable, assume that Springfield employs the half-year convention.

a. Record the purchase of the machine.

b. Assume that Springfield uses the straight-line method of depreciation. Record depreciation expense for the first two years of the machine’s life.

c. Assume that Springfield uses the double-declining balance method of depreciation. Record depreciation expense for the first two years of the machine’s life.

d. Assume that Springfield uses the units-of-production method of depreciation. During Year One, the machine produces 600,000 units. During Year Two, the machine produces 578,000 units. Record depreciation expense for the first two years of the machine’s life.

Explanation / Answer

a. Machinery value = $ 39000 ( $35600+ $ 3400 )

b. Annual depreciation expense = $39000-0 / 5 years = 7800/year

So assuming that springfield uses the straight line method of depreciation, the depreciation for two years of the machine;s life = $ 7800 * 2 = $15600.

*Depreciation rate = 1 / 5 = 0.2 = 20% yearly

1st year depreciation = 39000 - 7800 = 31200

2nd year depreciation = 31200 - 7800 = 23400 so on and so forth

c.

Depreciation according to straight-line method = 20%

so according to the doubline declining method = 20% * 2 = 40%

1st year depreciation = 39000 - 15600 = 23400

2nd year depreciation = 23400 - 9360 = 14040

*15600 = 39000 * 40%

*9360 = 23400 * 40%

d.

Depreciation = 39000 - 0 / 2400000 = 0.01625 / unit

1st year depreciation = 600000 * 0.01625 = 9750

i.e 39000 - 9750 = 29250 (Book value)

2nd year depreciation = 578000 * 0.01625 = 9393

i.e 29250 - 9393 = 19857

***Every figure pertains to $

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