Question

Depreciation Methods On January 2, 2018, Skyler, Inc. purchased a laser cutting machine to be used in the fabrication of a part for one of its key products. The machine cost $120,000, and its estimated useful life was four years or 920,000 cuttings, after which it could be sold for $5,000. Required a. Calculate each year's depreciation expense for the machine's useful life under each of the following depreciation methods (round all answers to the nearest dollar): 1. Straight-line. 2. Double-declining balance. 3. Units-of-production. (Assume annual production in cuttings of 200,000; 350,000; 260,000; and 110,000.) b. Assume that the machine was purchased on July 1, 2018. Calculate each year's depreciation expense for the machine's useful life under each of the following depreciation methods: 1. Straight-line. 2. Double-declining balance.

Answer 1

Answer:

Part A  

1. Straight-line.    

Year   Depreciation expenses ($)  

2018  228,750  

2019  228,750  

2020  228,750  

2021  228,750  

2. Double-declining balance.  

Year   Depreciation expenses ($)  

2018  460,000  

2019  230,000  

2020  115,000  

2021  110,000  

3. Units-of-production. (Assume annual production in cuttings of 200,000; 350,000; 260,000; and 110,000.)    

Year   Depreciation expenses ($)  

2018  198,913  

2019  348,098  

2020  258,587  

2021  109,402  

Part B  

1. Straight-line.    

Year   Depreciation expenses ($)  

2018  114,375  

2019  228,750  

2020  228,750  

2021  228,750  

2022  114,375  

2. Double-declining balance.  

Year   Depreciation expenses ($)  

2018  230,000  

2019  345,000  

2020  172,500  

2021  86,250  

2022  81,250  

3. Units-of-production. (Assume annual production in cuttings of 200,000; 350,000; 260,000; and 110,000.)    

Year   Depreciation expenses ($)  

2018  99,457  

2019  273,505  

2020  303,342  

2021  183,995  

2022  54,701  

Explanation:

Note: See the calculation in the attached excel file.

Download xlsx

Answer 2

Answer: see explanation below for answers.

Explanation:

Given:

Cost of machine = $120,000

Estimated useful life = 4 years

Estimated cuttings = 920,000

Salvage value = $5,000

Straight-line depreciation:

(Cost of machine - salvage value)/useful life

Year 1 depreciation

= (120,000 - 5,000)/4

= 115,000/4

= $28,750

Year 2 depreciation

91,250 - 28,750 = $62,500

Year 3 depreciation

62,500 - 28,750 = $33,750

Year 4 depreciation

33,750 - 28,750 = $5,000

Double declining balance depreciation:

Double-declining balance formula = 2 X Cost of the asset X Depreciation rate

First, we calculate the depreciation rate thus:

1/useful life X 100 = 1/4 X 100

25%

We have:

First year depreciation:

2 X 120,000 X 25% = $60,000

Second year depreciation:

60,000 X 50% = $30,000

Third year depreciation:

30,000 X 50% = $15,000

Fourth year depreciation:

15,000 X 50% = $7,500

Units-of-production depreciation:

DE = [(Original Value − Salvage Value)/Estimated Production Capability] X U

where:

First year depreciation:

DE=Depreciation Expense

U=Units per year

= [(120,000 - 5,000)/920,000] X 200,000

= [115,000/920,000] X 200,000

= 0.125 X 200,000 = $25,000

Second year depreciation:

= [(95,000 - 5,000)/920,000] X 350,000

= [90,000/920,000] X 350,000

= 0.098 X 350,000 = $34,300

Third year depreciation:

= [(60,700 - 5,000)/920,000] X 260,000

= [55,700/920,000] X 260,000

= 0.06 X 260,000 = $15,600

Fourth year depreciation:

= [(45,100 - 5,000)/920,000] X 110,000

= [40,100/920,000] X 110,000

= 0.04 X 110,000 = $4,400

Now we assume the machine was bought on July 1, 2018

Straight line depreciation:

First half-year depreciation

= $28,750/2 = $14,375

Second year depreciation

= 105,625 - 28,750 = $76,875

Third year depreciation

= 76,875 - 28,750 = $48,125

Fourth year depreciation

= 48,125 - 28,750 = $19,375

For the first half of the fifth year

= 19,375 - 14,375 = $5,000

Double declining balance depreciation:

First year depreciation

60,000/2 = $30,000

Second year depreciation

90,000 X 50% = $45,000

Third year depreciation

45,000 X 50% = $22,500

Fourth year depreciation

22,500 X 50% = $11,250

​