Financial Accounting Home Work

HW Question Swanton Company purchased a new machine at a cost of $120000. The estimated salvage value is $12000. The machine is expected to be used for 10000 working hours during its five years. Compute and record the depreciation using straight line, unit of activity and declining-balance methods. HW Answer Section 1) Depreciation = Straight-Line Method 120000-12000 5 Entry Recording Depreciation Expense Accumulated Depreciation Year 2 Depreciation Expense Accumulated Depreciation Year 3 Depreciation Expense Accumulated Depreciation Year 4 Depreciation Expense Accumulated Depreciation Year 5 Depreciation Expense Accumulated Depreciation Section 2) Units-of-Activity Method 21600 21600 21600 21600 21600 21600 21600 21600 = 21600

Year Year 1

Dr. 21600

Cr. 21600

Assuming that expected hours were: Year 1 2000, Year 2 3000, Year 3 4000, Year 4 5000, and Year 5 6000; we calculate it below: Depreciation = 120000-12000 10000 = 10.8

Year Year 1

Entry Recording/Computation Computation = 10.8 x 2000 = 21600 Depreciation Expense Accumulated Depreciation

Dr.

Cr.

21600 21600

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Financial Accounting Home Work

Year 2 Computation = 10.8 x 3000 = 32400 Depreciation Expense Accumulated Depreciation Year 3 Computation = 10.8 x 4000 = 43200 Depreciation Expense Accumulated Depreciation Year 4 Computation = 10.8 x 5000 = 54000 Depreciation Expense Accumulated Depreciation Year 5 Computation = 10.8 x 6000 = 64800 Depreciation Expense Accumulated Depreciation Section 3) Declining-Balance Method 1 5 X 100% 20 64800 64800 54000 54000 43200 43200 32400 32400

Declining-Balance Rate =

Double-Declining Balance = 20 x 2 = 40% Book Accumulated Depreciation 48000 76800 94080 104448 108000 Value End of the Year 72000 43200 25920 15552 12000

Book Value Year Beginning of the Year 1 2 3 4 5 120000 72000 43200 25920 15552 40% 40% 40% 40% 40% Depreciation Rate

Annual Depreciation Expense 48000 28800 17280 10368 *3552

*Computation of 6220.8 (15552 x 40%) is adjusted to 3552 in order for book value to equal salvage value.

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