Acet210 Exam 2 - Chapter 5,6 Problem 5-Depreciation Grizzly Bear purchased a sal

Question

Acet210 Exam 2 - Chapter 5,6 Problem 5-Depreciation Grizzly Bear purchased a salmon canning machine on January 1, 2017. Grizzly provides the following data related t transaction (use the data for both Part 1 and 2) Cost of machine. Residual value$30,000 Can produced in 2017 650,000 cans $600,000 Expected useful life 20 years Total estimated output (in can )...7,500,000 cans Can produced in 2018 00,000 cans Part 1 (a) If Grizzly is to use the Straight-line method, what is Grizzly's depreciation expense for Year 2018? (2pt) (b) If Grizzly is to use the Double-declining balance, what is Grizzly's depreciation expense for Year 2018? (2pts) (d) If Grizzly is to use the Unit of production method, what is Grizzly's depreciation expense for Year 2017? (2pts) Part 2 Grizzly decided to use the straight-line depreciation method to account for the machine. At the end of the 10 year, Grizzly traded in the salmon canning machine for a tuna canning machine with a sticker price of $450,000. Grizzly pai cash of $150,000. Determine Grizzly's gain or loss on this transaction. Prepare the journal entry to record the trade-in the old machine with the new machine. (6pts)

Explanation / Answer

Part 1)

a) Straight-line method :-

Depreciation Expenses = (Cost - Salvage Value) / usefull life

= ($600000 - $30000) / 20

= $28500

b) Double Declining Balance :-

Dapreciation Rate = 2 * Straight-line Rate

= 2 * ((1/20)*100)

= 10%

Book Value of Machine on 2018 = $600000 - ($600000*10%) = $540000

Depreciation for 2018 = $540000 * 10% = $54000

c) Unit of Production Method :-

Depreciation for 2017 = (Cost of Machine * No. of Units Production in 2017) / Total Estimated Output

= ($600000*650000) / 7500000

= $52000

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