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Oct 1, 2017 purchase A machine costing $30,000 with a five year life and salvage value $2,000
Oct 1, 2017 purchase A machine costing $30,000 with a five year life and salvage value $2,000. The manager estimates the machine will prodcue 1,000 units of products during its useful life. It actually produces the following units 300 units in Year 1, 2,000 units in Year 2, 3,000 units in Year 3, 2,700 in Year 4, 1,200 Year 5, and 800 in Year 6. Compute the Depreciation Expense for three different methods: (Hint: Check the Purchase DATE !!!!) Straight line method Depreciation Schedule What is the Je to record Depreciation Expense at Dec 31, 2017 Date Account Title Debit Credit based on Straightline method. Year What is the JE to record Depreciation Expense at Dec 31, 2018 Date Account Title Debit Credit Unit of Production Method Year Total Double Declining Method Depreciation Schedule Year What is the Machine Book Value at the end of year 1 using Straigthline Method?. what is the Machine Book Value at the end of Year 2 using Straigthline Method?.
Expert Solution
1)Depreciation as per straight line method
Formula= (Purchase cost - salvage value)÷life of assets
So the depreciation per as per SLM is
($30000 - $2000)÷5
=$28000 ÷5
=$5600/- per year
| Year | Opening balance | Addition | Depreciation | Balance |
| 2017 | 0 | $30000 | 1400 ( 5600÷12 ×for 3 month) | 28600 |
| 2018 | 28600 | 0 | 5600 | 23000 |
| 2019 | 23000 | 0 | 5600 | 17400 |
| 2020 | 17400 | 0 | 5600 | 11800 |
| 2021 | 11800 | 0 | 5600 | 6200 |
| 2022 | 6200 | 0 | 4200(5600÷12 × 9 months) | 2000 |
Machine book value at the end of year 1 =$24400
Machine book value at the end of 2nd year=$18800
Journal entries
1)Depreciation a/c_ dr 1400
To Machinery a/c _ cr 1400
(Depreciation charged to asset at end of 2017)
2) Depreciation a/c _dr. 5600
To Machinery a/c _cr. 5600
(Depreciation charged for 2018 at end)
2) Depreciation as per units of production method
Formula for depreciation expenses
={ ( Purchase cost- salvage value)÷ no.of units produced } × Units per year
However
Total units =300+2000+3000+2700+1200=9200
($30000 - $2000)÷9200 =3.0435
| Year | Opening | Addition | Units | Dep. Exp | Depreciation(units×Dep.exp) | balance |
| 1 | 0 | 30000 | 300 | 3.0435 | 913.05 | 29086.95 |
| 2 | 29086.95 | 0 | 2000 | 3.0435 | 6087 | 22999.95 |
| 3 | 22999.95 | 0 | 3000 | 3.0435 | 9130.5 | 13869.45 |
| 4 | 13869.45 | 0 | 2700 | 3.0435 | 8217.45 | 5652 |
| 5 | 5652 | 0 | 1200 | 3.0435 | 3652 | 2000 |
3.) Depreciation as per double decline method
Depreciation = depreciation % as per straight line method × 2 x Book value of asset at beginning.
% of SLM depreciation= depreciation as per SLM÷ Purchase cost
=5600 per year( calaculated in method 1st) ÷ 30000=18.67%
Rate=18.67% ×2 =37.34
| Year | opening | addition | Rate | Depreciation (value × rate) | Balance |
| 1 | 0 | 30000 | 37.34 | 11202 | 18798 |
| 2 | 18798 | 0 | 37.34 | 7019.17 | 11778.83 |
| 3 | 11778.83 | 0 | 37.34 | 4398.2 |
7380.63 |
| 4 | 7380.63 | 0 | 37.34 | 2755.93 | 4624.7 |
| 5 | 4624.7 | 0 | 37.34 | 1726.86 | 2898 |
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