Question

A machine that produces cellphone components is purchased on January 1,2020 , for $183,000, It is expected to have a useful life of four years and a residual value of $13,000. The machine is expected to produce a total of 200,000 components during its life. distributed as follows: 40,000 in 2020,50,000 in 2021, 60,000 in 2022, and 50,000 in 2023. The company has a December 31 year end. Calculate the amount of depreciation to be charged each year, using each of the following methods: 1. Straighit-firie method Strakoth-line inothod depreciation 5 per year

Answer 1

To calculate the depreciation each year, the straight-line method is used to divide the difference between the purchase price and residual value by the useful life. The declining balance method uses the book value and a depreciation rate.

Step-by-step explanation:

To calculate the amount of depreciation to be charged each year using the straight-line method, subtract the residual value from the purchase price and divide by the useful life in years. In this case, the annual depreciation would be ($183,000 - $13,000) / 4 = $42,500.

To calculate the amount of depreciation to be charged each year using the declining balance method, multiply the book value at the beginning of each year by the depreciation rate. In this case, the annual depreciation rate would be 5% (0.05). The depreciation would be: Year 1: $183,000 * 0.05 = $9,150, Year 2: ($183,000 - $9,150) * 0.05 = $8,607.50, Year 3: ($183,000 - $9,150 - $8,607.50) * 0.05 = $8,177.88, Year 4: ($183,000 - $9,150 - $8,607.50 - $8,177.88) * 0.05 = $7,769.99.