Question

At the beginning of the year, Periwinkle Manufacturing bought a shed, a machine, and a trailer. The shed initially cost 20,500 but had to be renovated at a cost of580. The shed was expected to last 7 years, with a residual value of 1,550. Repairs costing400 were incurred at the end of the first year of use. The machine cost 11,350 and is estimated to have a total life of 40,000 hours and a residual value of900. The machine was actually used 2,000 hours in year 1 and 4,000 hours in year 2. The trailer cost 11,500 and was expected to last 4 years, with a residual value of2,000. What is the total depreciation expense for the shed, machine, and trailer at the end of year 2?

1) $2,250
2) $2,350
3) $2,450
4) $2,550

Answer 1

The total depreciation expense calculation for Periwinkle Manufacturing’s shed, machine, and trailer does not match the provided multiple-choice options. Using the straight-line method for the shed and trailer, and the units-of-production method for the machine, the annual depreciation cost is calculated for each asset. Based on the information provided, it seems there is an error in the question or options given.

Step-by-step explanation:

To calculate the total depreciation expense for Periwinkle Manufacturing's assets at the end of year 2, we need to apply different methods of depreciation for the shed, the machine, and the trailer. For the shed, we use straight-line depreciation, which evenly spreads the cost of the asset over its useful life.

The initial cost ($20,500) plus renovation expenses ($580) minus the residual value ($1,550) results in a depreciable base of $19,530, which divided by the useful life (7 years) yields an annual depreciation expense of $2,790. Repairs do not affect the depreciation calculation. The machine's depreciation is calculated using the units-of-production method.

We will total the hours used in the first two years and apply a per-hour depreciation rate. The rate is computed by dividing the depreciable base of the machine, which is the purchase price ($11,350) minus the residual value ($900), by the total estimated useful life in hours (40,000), resulting in a rate of $0.26125 per hour.

For year 1 (2,000 hours) and year 2 (4,000 hours), the depreciation expense is 2,000 × $0.26125 + 4,000 × $0.26125 = $1,567.50. Lastly, the trailer's depreciation is again straight-line with an annual depreciation of ($11,500 - $2,000) / 4 years = $2,375. Accumulating the expenses, we get a total depreciation of $2,790 (shed year 2) + $1,567.50 (machine years 1 and 2) + $2,375 (trailer year 2) = $6,732.50.

However, the options provided do not include this result. It seems there might be a mistake in either the question or the options given. To address the student's provided multiple-choice answers, we must assume the question was meant to inquire about the annual depreciation at the end of the second year, not the total cumulative amount, which would be ($2,790 for the shed + $1,052.50 for the machine + $2,375 for the trailer) = $6,217.50 in year 2. This number is still not matching the given answer choices. Therefore, we need more information or clarification regarding the question or provided options.