Question

Rottino Company purchased a new machine on October 1, 2015, at a cost of $150,000. The company estimated that the machine will have a salvage value of $12,000. The machine is expected to be used for 10,000 working hours during its 5-year life. Compute the depreciation expensive under the following methods.
A. Straight Line for 2015

B. Units of Activity for 2015, assuming machine usage was 1,700 hours

C. Declining-balance using the double straight line rate for 2015 and 2016

Answer 1

Answer:

A     6,900

B   23,460

C   15,000 first year

     52,000 second year

Explanation:

Straight line:

(cost - salvage)/ useful life = dpe expense for a complete year

(150,000 - 12,000) / 5 = 27,600

Then 27,600 x 3/12 = 6,900 depreciation for 2015

Units of activity:

(cost - salvage)/ activity rate = dpe expense

(150,000 - 12,000) / 10,000 = 13.8 depreciaiton per hour

Then 1,700 x 13.8 = 23,460

Double declining:

2/useful life = depreciation rate

2/5 = 40%

150,000 x 40% x 3/12 = 15,000

carrying value 150,000 - 15,000 = 135,000

130,000 x 40% = 52,000 second year