On January 1,2014,Evers Company purchased the following machine for use in its p
ID: 2451561 • Letter: O
Question
On January 1,2014,Evers Company purchased the following machine for use in its production process: Machine:the recorded cost of this machine was 180,000. Evers estimates that the useful life of the machines is 4 years with a 10,000 salvage value remaining at the end of that time period Instructions: (a)calculate the amount of depreciation expense that Evers should record each year of its useful life under the following assumptions. (1)Straight-line method (2)Double declining balance method (3)Units-of-activity method and estimates that the useful life of machine is 125,000 units. Actual usage is as follows:2014,45,000 units;2015 35,000 units ;2016,25,000 units;2017,20,000 units (b) which method used to calculate depreciation reports the highest amount of depreciation expense in year 1?the highest in year 4?the highest total amount over the 4-year period?
Explanation / Answer
a.
SLM depreciation = (180000-10000)/4 = $42500 per year
Double declining balance depreciation rate = [(180000/4)/180000]*2 = 50%
Units of activity method - Working for ywar 1 = (180000-10000)*45000/125000 = 61200
b.
In year 1 highest amount of depreciation is in Double declining balance method of 90000
In year 2 highest amount of depreciation is in Units of activity method of 47600
The highest total amount of depreciation over the four year period is in SLM and Units of activity method of 170000
Year SLM Double declining Units of activity 1 42500 90000 (180000*50%) 61200 2 42500 45000 (90000*50%) 47600 3 42500 22500 (45000*50%) 34000 4 42500 11250 (22500*50%) 27200 Total 170000 168750 170000