Question

Assume Organic Ice Cream Company, Inc., bought a new ice cream production kit (pasteurizer/homogenizer, cooler, aging vat, freezer, and filling machine) at the beginning of the year at a cost of $14,000. The estimated useful life was four years, and the residual value was $980. Assume that the estimated productive life of the machine was 9,300 hours. Actual annual usage was 3,720 hours in Year 1; 2,790 hours in Year 2; 1,860 hours in Year 3; and 930 hours in Year 4. Required: 1. Complete a separate depreciation schedule for each of the alternative methods. a. Straight-line. b. Units-of-production. c. Double-declining-balance.

Answer 1

Organic Ice Cream Company, Inc.

Depreciation Schedules:

a. Straight-line.

Year Cost Depreciation Accumulated Net book Value

Depreciation

Year 1 $14,000 $3,255 $3,255 $10,745

Year 2 $14,000 $3,255 $6,510 $7,490

Year 3 $14,000 $3,255 $9,765 $4,235

Year 4 $14,000 $3,255 $13,020 $980

b. Units-of-production.

Year Cost Depreciation Accumulated Net book Value

Depreciation

Year 1 $14,000 $5,208 $5,208 $8,792

Year 2 $14,000 $3,906 $9,114 $4,886

Year 3 $14,000 $2,604 $11,718 $2,282

Year 4 $14,000 $1,302 $13,020 $980

c. Double-declining-balance.

Year Cost Depreciation Accumulated Net book Value

Depreciation

Year 1 $14,000 $7,000 $7,000 $7,000

Year 2 $14,000 $3,500 $10,500 $3,500

Year 3 $14,000 $1,750 $12,250 $1,750

Year 4 $14,000 $770 $13,020 $980

Step-by-step explanation:

a) Data and Calculations:

Cost of new ice cream production kit = $14,000

Residual value = $980

Depreciable value = $13,020

Estimated useful life = 4 years

Annual depreciation expense under straight-line method = $3,255 ($13,020/4)

Estimated productive life of the machine = 9,300 hours

Units-of-productive hours depreciation method per hour = $1.40 ($13,020/9,300)

Year 1 3,720 hours * $1.40 = $5,208

Year 2 2,790 hours * $1.40 = $3,906

Year 3 1,860 hours * $1.40 = $2,604

Year 4 930 hours* $1.40 = $1,302

Double-declining-balance method:

Depreciation rate = 100/4 * 2 = 50%

Year 1 = $14,000 * 50% = $7,000

Year 2 = $7,000 * 50% = $3,500

Year 3 = $3,500 * 50% = $1,750

Year 4 = $770 ($1,750 - $980)