Question

On January 1, 2022, Evers Company purchased the followingtwo machines for use in its production process: Machine A : The cash price of this machine was $48,000. Related expenditures also paid in cash incluced: sales tax $1.700. shipping costs $150, insurance during shipping $80, installation and testing costs $70, and $100 of oil and lubricants to be used with the machinery during its first year of operations, Evers estimates that the useful life of the machine is 5 years with a $5,000 salvage value remaining at the end of that time period. Assume that the straightline method of depreciation is used. Machine B: The recorded cost of this machine was $180,000. Evers estimates that the useful life of the machine is 4 years witha $10,000 salvage value remaining at the end of that time period. Calculate the amount of depreciation expense that Evers should record for Machine B each year of its useful life under the following assumptions, (Round depreciation cost per unit to 2 decimal places, e.s. 12.25. Round final answers to 0 decimal places, e.g- 2,125,) (1) Evers uses the straight-tine method of depreciation. (2) Evers uses the declining-balance method, The rate used is twice the straight-line rate. (3) Evers uses the units-of-activity methad and estimates that the useful life of the machine is 125.000 units. Actual asage is as follows: 2022,45,000 units; 2023,35,000 units: 2024,25,000 units; 2025,20,000 anits.

Answer 1

Evers Company should record the following depreciation expenses each year for Machine B using the units-of-activity method:
Year 2022: $64,800
Year 2023: $50,400
Year 2024: $36,000
Year 2025: $28,800

To calculate the amount of depreciation expense that Evers Company should record for Machine B each year of its useful life, we need to consider three different depreciation methods: straight-line, declining-balance, and units-of-activity.

1. Straight-Line Method:
The straight-line method evenly allocates the cost of the asset over its useful life. To calculate the annual depreciation expense, subtract the salvage value from the recorded cost and divide by the useful life.

Recorded cost - Salvage value / Useful life

For Machine B:
Recorded cost: $180,000
Salvage value: $10,000
Useful life: 4 years

Depreciation expense per year = (Recorded cost - Salvage value) / Useful life

Depreciation expense per year = ($180,000 - $10,000) / 4

Depreciation expense per year = $170,000 / 4

Depreciation expense per year = $42,500

Therefore, Evers Company should record a depreciation expense of $42,500 each year for Machine B using the straight-line method.

2. Declining-Balance Method:
The declining-balance method applies a constant depreciation rate to the book value of the asset each year. In this case, the rate used is twice the straight-line rate.

To calculate the depreciation expense for each year, multiply the book value of the asset at the beginning of the year by the depreciation rate.

Depreciation rate = Straight-line rate x 2

Straight-line rate = 1 / Useful life

For Machine B:
Straight-line rate = 1 / 4 = 0.25
Depreciation rate = 0.25 x 2 = 0.50 (50%)

To calculate the depreciation expense for each year:
Year 1: Book value at the beginning = Recorded cost = $180,000
Depreciation expense = Book value x Depreciation rate = $180,000 x 0.50 = $90,000

Year 2: Book value at the beginning = Recorded cost - Depreciation expense from Year 1 = $180,000 - $90,000 = $90,000
Depreciation expense = Book value x Depreciation rate = $90,000 x 0.50 = $45,000

Year 3: Book value at the beginning = Recorded cost - Depreciation expense from Year 1 and Year 2 = $180,000 - $90,000 - $45,000 = $45,000
Depreciation expense = Book value x Depreciation rate = $45,000 x 0.50 = $22,500

Year 4: Book value at the beginning = Recorded cost - Depreciation expense from Year 1, Year 2, and Year 3 = $180,000 - $90,000 - $45,000 - $22,500 = $22,500
Depreciation expense = Book value x Depreciation rate = $22,500 x 0.50 = $11,250

Therefore, Evers Company should record the following depreciation expenses each year for Machine B using the declining-balance method:
Year 1: $90,000
Year 2: $45,000
Year 3: $22,500
Year 4: $11,250

3. Units-of-Activity Method:
The units-of-activity method allocates the cost of the asset based on its usage. To calculate the depreciation cost per unit, divide the cost of the asset by the estimated total units of activity.

Cost of the asset / Estimated total units of activity

For Machine B:
Cost of the asset: $180,000
Estimated total units of activity: 125,000 units

Depreciation cost per unit = Cost of the asset / Estimated total units of activity

Depreciation cost per unit = $180,000 / 125,000 units

Depreciation cost per unit = $1.44 per unit

To calculate the depreciation expense for each year, multiply the actual usage of the machine for that year by the depreciation cost per unit.

Year 2022: Actual usage = 45,000 units
Depreciation expense = Actual usage x Depreciation cost per unit = 45,000 units x $1.44 per unit = $64,800

Year 2023: Actual usage = 35,000 units
Depreciation expense = Actual usage x Depreciation cost per unit = 35,000 units x $1.44 per unit = $50,400

Year 2024: Actual usage = 25,000 units
Depreciation expense = Actual usage x Depreciation cost per unit = 25,000 units x $1.44 per unit = $36,000

Year 2025: Actual usage = 20,000 units
Depreciation expense = Actual usage x Depreciation cost per unit = 20,000 units x $1.44 per unit = $28,800

Therefore, Evers Company should record the following depreciation expenses each year for Machine B using the units-of-activity method:
Year 2022: $64,800
Year 2023: $50,400
Year 2024: $36,000
Year 2025: $28,800

Please note that the depreciation expense per year may vary depending on the method used.