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You are a financial analyst for Loch Motor Company and have been asked to determine the impact of alternative depreciation methods. For your analysis, you have been asked to compare methods based on a machine that cost $246,000. The estimated useful life is 10 years, and the estimated residual value is $62,000. The machine has an estimated useful life in productive output of 230,000 units. Actual output was 35,000 in year 1 and 31,000 in year 2.
Required:
For years 1 and 2 only, prepare separate depreciation schedules assuming:
a. Straight-line method.
b. Units-of-production method.
c. Double-declining-balance method.

Respuesta :

jepessoa

Answer:

a. Straight-line method.

depreciable value = $246,000 - $62,000 = $184,000

deprecaition expense per year = $184,000 / 10 = $18,400

year                 depreciation expense              book value

1                         $18,400                                   $227,600

2                        $18,400                                   $209,200

b. Units-of-production method.

depreciable value = $246,000 - $62,000 = $184,000

deprecaition expense per unit = $184,000 / 230,000 = $0.80

year                 depreciation expense              book value

1                         $28,000                                  $218,000

2                        $24,800                                   $193,200

c. Double-declining-balance method.

depreciation expense year 1 = $246,000 x 1/10 x 2 = $49,200

depreciation expense year 2 = $196,800 x 1/10 x 2 = $39,360

year                 depreciation expense              book value

1                         $49,200                                  $196,800

2                        $39,360                                   $157,440

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