Question

Solar Innovations Corporation bought a machine at the beginning of the year at a cost of $28,000. The estimated useful life was five years and the residual value was $3,000. Assume that the estimated productive life of the machine is 10,000 units. Expected annual production was year 1, 1,900 units; year 2, 2,900 units; year 3, 1,900 units; year 4, 1,900 units; and year 5, 1,400 units. Required: Complete a depreciation schedule for each of the alternative methods. a. Straight-line. b. Units-of-production. c. Double-declining-balance. Which method will result in the highest net income in year 2

Answer 1

Answer:

You get the highest net income in year 2 with  Units-of-production  method.

Explanation:

Schedule of depreciation expense, accumulated depreciation, and book value per year for the equipment under the three depreciation methods is attached.  

Straight-line

Depreciation expense 2nd year=$5.000=(Original Value -Residual Value)/Useful life

Units-of-production

Units of Production Rate=2.5=(Original Value -Residual Value)/estimated productive life

Depreciation expense 2nd year= 7250

Double-declining-balance.

Depreciation rate        20,00%        1/useful life *100

Depreciation expense 2nd year= 6720

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