Question

Solar Innovations Corporation bought a machine at the beginning of the year at a cost of $25,000. The estimated useful life was five years and the residual value was $3,000. Assume that the estimated productive life of the machine is 10,000 units.

Expected annual production was:
Year 1 2,000 units
Year 2 3,000 units
Year 3 2,000 units
Year 4 2,000 units
Year 5 1,000 units
1. Complete the cost column of a depreciation schedule for each of the alternative methods.
a. Straight-line
Income Statement Balance Sheet
Year Depreciation Expense Cost Accumulated Depreciation Book Value
At acquisition $25,000
1 $4,400 $25,000 $4,400 20,600
2 4,400 8,800 16,200
3 4,400 13,200 11,800
4 4,400 17,600 7,400
5 4,400 22,000 3,000
b. Units-of-production
Income Statement Balance Sheet
Year Depreciation Expense Cost Accumulated Depreciation Book Value
At acquisition $25,000
1 $4,400 $25,000 $4,400 20,600
2 6,600 11,000 14,000
3 4,400 15,400 9,600
4 4,400 19,800 5,200
5 2,200 22,000 3,000
c. Double-declining-balance
Income Statement Balance Sheet
Year Depreciation Expense Cost Accumulated Depreciation Book Value
At acquisition $25,000
1 $10,000 $25,000 $10,000 15,000
2 6,000 16,000 9,000
3 3,600 19,600 5,400
4 2,160 21,760 3,240
5 240 22,000 3,000

Answer 1

a. Straight Line :

Year 1 $4,400

Year 2 $ 4,400

Year 3 $4,400

Year 4 $4,400

Year 5 $ 4,400

b. Units production :

Year 1 $5,000

Year 2 $7,500

Year 3 $5,000

Year 4 $5,000

Year 5 $2,500

c. Double declining :

Year 1 $12,500

Year 2 $6,250

Year 3 $3,125

Year 4 $1,562.5

Year 5 $781.25

Step-by-step explanation:

a. Straight Line depreciation : ( Cost of asset - Salvage Value ) / Useful Life

Depreciation : ( 25,000 - 3,000 ) / 5 years = 4,400

b. Units of Production : ( Cost of Asset / Total Machine units ) * Usage per year

Year 1 : ( 25,000 / 10,000 ) * 2,000 = $5,000

Year 2 : ( 25,000 / 10,000 ) * 3,000 = $7,500

Year 3 : ( 25,000 / 10,000 ) * 2,000 = $5,000

Year 4 : ( 25,000 / 10,000 ) * 2,000 = $5,000

Year 5 : ( 25,000 / 10,000 ) * 1,000 = $2,500

c. Double declining Method : Cost * declining percentage

Year 1 : 25,000 * 50% = 12,500

Year 2 : 25,000 * 25% = 6,250

Year 3 : 25,000 * 12.5% = 3,125

Year 4 : 25,000 * 6.25% = 1,562.5

Year 5 : 25,000 * 3.125% = 781.25