In recent years, Cullumber Company has purchased three machines. Because of frequent employee turnover in the accounting department, a different accountant was in charge of selecting the depreciation method for each machine and various methods have been used.

Information concerning the machines is summarized in the table below:

Machine Acquired Cost Salvage Value Useful Life (in years) Depreciation Method
1 Jan. 1, 2015 $134,000 $34,000 10 Straight-line
2 July 1, 2016 81,000 11,100 5 Declining-balance
3 Nov. 1, 2016 77,500 8,500 6 Units-of-activity

For the declining-balance method, Cullumber Company uses the double-declining rate. For the units-of-activity method, total machine hours are expected to be 34,500.

Actual hours of use in the first 3 years were:

2016 730
2017 5,900
2018 7,600.

Required:
If machine 2 was purchased on April 1 instead of July 1, what would be the depreciation expense for this machine in 2016?

If machine 2 was purchased on April 1 instead of July 1, what would be the depreciation expense for this machine in 2016 is $24,300.

Using this formula

2016 Depreciation expense = Cost of machine x Double declining depreciation rate x Time period

Where:

Cost of machine 2 = $81,000

Useful life of machine 2 = 5 years

Double declining depreciation rate = 2 x 1/5=40%

Time period= (April 1 to December 31=9 months)=9/12

Let plug in the formula  

2016 Depreciation expense = 81,000 x 40% x 9/12

2016 Depreciation expense = $24,300

Inconclusion if machine 2 was purchased on April 1 instead of July 1, what would be the depreciation expense for this machine in 2016 is $24,300.

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Cullumber Company

The depreciation expense for machine 2 in 2016 is:

$16,200

Explanation:

a) Data and Calculations:

Machine Acquired    Cost        Salvage Value   Useful Life     Depreciation

                                                                             (in years)          Method

1 Jan. 1, 2015         $134,000     $34,000                10        Straight-line

2 July 1, 2016            81,000           11,100                 5        Declining-balance

3 Nov. 1, 2016           77,500          8,500                 6        Units-of-activity

Total machine hours expected = 34,500

Actual hours of use in the first 3 years were:

2016       730

2017   5,900

2018   7,600

Double-declining method:

Depreciation expense for machine 2 = $16,200 ($81,000 * 40% *6/12)

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