Question

The Collins Metal Shop purchased a stamping machine for $257,000 on March 1,2015 . The machine is expected to have a useful life of 10 years, a salvage value of $32,000, a production of 250,000 units, and working hours of 30,000 . During 2016, Denver used the stamping machine for 2,450 hours to produce 23,450 units. From the information given, compute the book depreciation expense for 2016 under each of the following methods.

A. Straight line
B. Units-of-production
C. Working-hours
D. Double-declining-balance (without conversion to straight line) E. Double-declining-balance (with conversion to straight line)

Answer 1

The depreciation expense for a stamping machine under the straight-line method is calculated as $22,500 per year. For units-of-production and working-hours methods, it is $2,125 and $1,837.50 for 2016, respectively. The double-declining-balance method cannot be calculated without additional data on the machine's previous depreciation and book value.

Step-by-step explanation:

The question involves calculating the depreciation expense for a stamping machine for the year 2016 under different methods. Each method uses a different basis to allocate the machine's cost over its useful life. The methods include the straight-line method, units-of-production, working-hours, and double-declining-balance with and without conversion to straight line.

To calculate depreciation using the straight-line method, subtract the salvage value from the cost of the machine, and divide that amount by the useful life. For the stamping machine:

• Depreciation expense = (Cost - Salvage value) / Useful life
• Depreciation expense = ($257,000 - $32,000) / 10
• Depreciation expense = $22,500 per year

Units-of-Production

This method allocates the cost of the machine based on the number of units produced.

Depreciation expense = (Cost - Salvage value) / Total units expected to be produced during entire useful life * Number of units produced in 2016

Depreciation expense = ($257,000 - $32,000) / 250,000 * 23,450

Depreciation expense = $22,500 * (23,450 / 250,000)

Depreciation expense = $2,125

Working-Hours Method

Similar to the units-of-production, with the basis being the number of working hours instead of units:

Depreciation expense = (Cost - Salvage value) / Total working hours expected * Number of hours machine worked in 2016

Depreciation expense = ($257,000 - $32,000) / 30,000 * 2,450

Depreciation expense = $22,500 * (2,450 / 30,000)

Depreciation expense = $1,837.50

Double-Declining-Balance

The double-declining-balance without converting to straight line and with conversion will require information on the machine's previous depreciation and book value which has not been provided; hence, the calculations for 2016 cannot be completed without additional data.