Asked by Lupita Sanchez on May 16, 2024
Verified
A company purchased a machine on January 1 of the current year for $750,000.Calculate the annual depreciation expense for each year of the machine's life (estimated at 5 years or 20,000 hours,with a salvage value of $75,000)using each of the below-mentioned methods.During the machine's 5-year life its hourly usage was: 3,000; 4,000; 5,000; 5,000; and 3,000 hours.
Units-Of-Production
Units-of-production is a method of depreciation that allocates the cost of an asset over its useful life based on the number of units it produces, reflecting wear and use more accurately.
Depreciation Expense
The systematic allocation of the cost of a tangible asset over its useful life, reflecting the decrease in value due to use and time.
Salvage Value
The predicted sale value of an asset at the end of its operational life.
- Ascertain and note the depreciation expenses of fixed assets by several methods.
- Understand and apply the concept of depletion for resource-based assets.
Verified Answer
Units of production: ($750,000 - $75,000)/ 20,000 hours = $33.75 per hour
Year 1 hours 3,000 * $33.75 = $101,250
Year 2 hours 4,000 * $33.75 = $135,000
Year 3 hours 5,000 * $33.75 = $168,750
Year 4 hours 5,000 * $33.75 = $168,750
Year 5 hours 3,000 * $33.75 = $101,250
Double-declining:
Year 1 $750,000 * 40% = $300,000
Year 2 ($750,000 - $300,000)* 40% = $180,000
Year 3 ($750,0000 - $480,000)* 40% = $108,000
Year 4 ($750,000 - $588,000)* 40% = $64,800
Year 5 ($750,000 - $652,800)* 40% = $38,880 but limited to $22,200 by salvage value
Learning Objectives
- Ascertain and note the depreciation expenses of fixed assets by several methods.
- Understand and apply the concept of depletion for resource-based assets.
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