Business, 21.01.2021 21:40 kenna162

On January 1, 2018, Friendly Farm Company purchased a new machine at a cost of $350,000. The machine has an estimated useful life of 4 years or 100,000 hours and residual value of $30,000. The machine will be used 30,000 hours in year one, 40,000 hours in year two, 20,000 hours in year 3, and 10,000 hours in year 4. Requirements: Prepare a depreciation schedule using each of the three methods: Straight line, Units of Production, and Double Declining Balance.

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Answer from: sairaanwar67

Friendly Farm Company

Schedule of Straight-line, Units of Production, and Double Declining Balance:

Straight-line Units of Production Double Declining

Year 1 Book value $350,000 $350,000 $350,000

Depreciation Exp. $80,000 $96,000 (30,000*$3.20) $175,000

Year 2 Book value $270,000 $254,000 $175,000

Depreciation Exp. $80,000 128,000 (40,000*$3.20) 87,500

Year 3 Book value $190,000 $126,000 $87,500

Depreciation Exp. $80,000 64,000 (20,000*$3.20) 43,750

Year 4 Book value $110,000 $62,000 $43,750

Depreciation Exp. 80,000 32,000 (10,000*$3.20) $13,750

Residual value $30,000 $30,000 $30,000

Explanation:

a) Data and Calculations:

Cost of new machine = $350,000

Estimated useful life = 4 years or 100,000 hours

Residual value = $30,000

Usage of machine:

Year 1 = 30,000 hours

Year 2 = 40,000 hours

Year 3 = 20,000 hours

Year 4 = 10,000 hours

Units of Production = $320,000/100,000 = $3.20 per unit

Depreciable amount = $320,000 ($350,000 - $30,000)

Straight-line method, Depreciation per year = $80,000 ($320,000)

= 25% (100/4).

Depreciation expense, using Double-Declining Balance rate = 25% * 2 = 50%:

Year 1 = $350,000 * 50% = $175,000

Year 2 = $175,000 * 50% = $87,500

Year 3 = $87,500 * 50% = $43,750

Year 4 = $13,750 ($43,750 - $30,000)

b) These different methods still arrive at the same end result as shown above. Note that depreciation is an accounting estimate which spreads the cost of an acquired long-term asset over its useful life.

Answer from: Quest

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Answer from: Quest

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On January 1, 2018, Friendly Farm Company purchased a new machine at a cost of $350,000. The machine...

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