Problem 8-2A Depreciation methods LO P1 A machine costing $208,600 with a four-y
ID: 2522158 • Letter: P
Question
Problem 8-2A Depreciation methods LO P1 A machine costing $208,600 with a four-year life and an estimated $15,000 salvage value is installed in Luther Company's factory on January 1. The factory manager estimates the machine will produce 484,000 units of product during its life. It actually produces the following units: 122,800 in 1st year, 123,000 in 2nd year, 119,800 in 3rd year, 128,400 in 4th year. The total number of units produced by the end of year 4 exceeds the original estimate-this difference was not predicted. (The machine must not be depreciated below its estimated salvage value.) Required Compute depreciation for each year (and total depreciation of all years combined) for the machine under each depreciation method. (Round your per unit depreciation to 2 decimal places. Round your answers to the nearest whole dollar.) Complete this question by entering your answers in the tabs below Units of Straight Line Production DDB Compute depreciation for each year (and total depreciation of all years combined) for the machine under each Straight-line depreciation Straight-Line Depreciation Year Depreciation Expense Tota Straight Line Units of ProductionExplanation / Answer
Answer 1
Yearly Depreciation as per Straight line method = (Cost - Salvage Value) / Estimated life
= ($208,600 - $15,000) / 4 years = $48,400
Straight line Depreciation
Answer 2
Yearly Depreciation as per Units of production method = Depreciable units * Depreciation per unit
Where , Depreciation per unit= (Cost - Salvage Value) / Estimated production in units ;
= ($208,600 - $15,000) / 484,000 units = $0.40 per units
Depreciable units can be maximum = Estimated production in units
Units of Productions
Answer 3
Depreciation as per DDB = SLM rate * 2 * Net book value at the beginning of the year.
where SLM rate = 1 / estimated life = 1 /4 = 25 %
** Depreciation Expense for 4th year = $26,075 - $15,000 = $11,075.
Since Book value cannot be lower than salvage value thus maximum depreciation expense in 4 th year = $11,075.
Year Depreciation Expense 1 $48,400 2 $48,400 3 $48,400 4 $48,400 Total $193,600