Question

# Solar Innovations Corporation bought a machine at the beginning of the year at a cost of...

 Solar Innovations Corporation bought a machine at the beginning of the year at a cost of \$32,000. The estimated useful life was five years and the residual value was \$4,000. Assume that the estimated productive life of the machine is 10,000 units. Expected annual production for year 1, 2,100 units; year 2, 3,100 units; year 3, 2,100 units; year 4, 2,100 units; and year 5, 600 units.
 Required: 1. Complete a depreciation schedule for each of the alternative methods. (Do not round intermediate calculations.)
 a. Straight-line.
 b. Units-of-production.
 c. Double-declining-balance.

(a) STRAIGHT LINE METHOD

Formula: Annual depreciation =

[original cost - salvage value]/estimated useful life

Therefore, annual depreciation = [\$32000 - \$4000]/5

= \$5600 each year

(b) UNITS OF PRODUCTION METHOD

Formula: Annual depreciation =

Therefore, depreciation for year 1

= \$5880

Depreciation for year 2

= \$8680

Depreciation for year 3

= \$5880

Depreciation for year 4

= \$5880

Depreciation for year 5

= \$15680

(c) Double declining balance method

Formula: annual depreciation = 2 x Straight line depreciation percent x book value at the beginning of the period

Straight line depreciation percent = (\$5600/\$28000) x 100 = 20%

Therefore, depreciation for year 1

2 x 20% x \$32000 = \$12800

Depreciation for year 2

2 x 20% x (\$32000 - \$12800) = \$7680

Depreciation for year 3

2 x 20% x (\$19200 - \$7680) = \$4608

Depreciation for year 4

2 x 20% x (\$11520 - \$4608) = \$2764.8

Depreciation for year 5

2 x 20% x (\$6912 - 2764.8) = \$1658.88

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