Question

Schrade Company bought a machine for $113,000 cash. The estimated useful life was four years and the estimated residual value was $8,860. Assume that the estimated useful life in productive units is 127,000. Units actually produced were 50,000 in year 1 and 52,000 in year 2. 2a. Which method would result in the lowest Earnings per Share for Year 1? Straight-line Units-of-production Double-declining-balance 2b. Which method would result in the lowest Earnings per Share for Year 2? Straight-line Units-of-production Double-declining-balance

Answer 1

Step-by-step explanation:

2a. Depreciation under each method shall be in 1st year;

1.Straight line method=$113,000-8,860/4=$26,035

2. Double declining method=(1/4)*=50%*113,000=$56,500

3.Units of production=($113,000-$8,860)/127,000=.82*50,000=$41,000

Earnings will be lowest in year 1 for double declining balance method as its depreciation is highest from rest of two methods.

2b. In year 2

1.Straight line depreciation=$26,035

2. Double declining method=$113,000-$56,500=$56,500*25%*2=$28,250

3. Units of production method=.82*52,000=$42,640

Earnings will be lowest for units of production method in year 2 as its depreciation is highest as compared to other two methods.