21.5k views
5 votes
Fancy Frappucinno purchased a coffee drink machine on January​ 1, 2018​, for $ 39,000. Expected useful life is 10 years or 150,000 drinks. In 2018​, 4,000 drinks were​ sold, and in 2019​, 15,000 drinks were sold. Residual value is $ 9,000.

Required:
1. Determine the depreciation expense for 2018 and 2019 using the following​ methods:
(a)​ Straight-line (SL),​ (b) Units of production​ (UOP), and​ (c) Double-declining-balance​ (DDB).
2. For each method​ (starting with​ (a) the​ straight-line method), select the appropriate formula needed to compute annual depreciation and then determine depreciation expense under that method for 2018 and 2019.

1 Answer

6 votes

Answer:

Straight line depreciation expense:

2018 = $3,000

2019 = $3,000

Unit of activity deprecation expense

2018 = $800

2019= $3,000

Double declining method:

2018 = $7,800

2019 = $6,240

Step-by-step explanation:

Straight line depreciation method = (Cost of asset - Salvage value) / useful life

($39,000 - $9,000) / 10 = $3,000

The straight line depreciation method allocates the same deprecation expense for each year of the useful life of the machine.

Thus, the depreciation expense in 2018 and 2019 is $3,000

Unit of activity depreciation method = (Total drinks sold in a year / total capacity of the machine ) × Cost of asset - Salvage value)

In 2018, deprecation expense =

(4,000 / 150,000 ) x $30,000 = $800

In 2019, deprecation expense =

(15,000 / 150,000 ) x $30,000 = $3,000

The double declining method =

Depreciation factor × cost of asset

Deprecation factor = 2 × (1/useful life)

2 × (1/10) = 0.2

Deprecation expense in 2018 = 0.2 × 39,000 = $7,800

Net book value = $39,000 - $7,800 = $31,200

Deprecation expense in 2019 = 0.2 × $31,200 = $6,240

I hope my answer helps you

User Kluddizz
by
8.4k points

No related questions found

Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.