Question

Yummy Ice Cream Company bought a new ice cream maker at the beginning of the year at a cost of $9,000. The estimated useful life was four years, and the residual (salvage) value was $1,000. Assume that the estimated productive life of the machine was 16,000 hours. Actual machine usage was 5,500 hours in year 1; 3,800 hours in year 2; 3,200 hours in year 3; and 3,500 hours in year 4.

Required
Complete a depreciation schedule for years 1 and 2 using:
a) Straight-line;
b) Double-declining balance; and
c) Units-of-production.

Answer 1

The depreciation schedule for the ice cream maker can be calculated using straight-line, double-declining balance, and units-of-production methods. The straight-line method results in an annual depreciation of $2,000 for both years. The double-declining balance and units-of-production methods result in a depreciation of $4,500 and $2,750 for Year 1, and $2,250 and $1,900 for Year 2, respectively.

Step-by-step explanation:

Using the given information, various methods of calculating depreciation are applied to derive the depreciation schedule for the first two years.Straight-Line Method

Total depreciable cost: $8,000 ($9,000 cost - $1,000 salvage value). Annual depreciation expense: $2,000 ($8,000/4 years).
Year 1 and Year 2 depreciation: $2,000 each year.Double-Declining Balance Method

First, determine the straight-line depreciation rate: 25% (100%/4 years). Double-declining rate: 50%.
Year 1 depreciation: 50% of $9,000 = $4,500.
Year 2 depreciation: 50% of the remaining book value ($9,000 - $4,500 = $4,500) = $2,250.Units-of-Production Method

Depreciation per hour: $0.50 ($8,000 total depreciable cost/16,000 hours).
Year 1 depreciation: $0.50 * 5,500 hours = $2,750.
Year 2 depreciation: $0.50 * 3,800 hours = $1,900.