Question

Please give a step by step solution to this problem. I am having trouble with the mid month computing. (April 20)

1. A high-speed multiple-bit drill press costing $960,000 has an estimated salvage value of $80,000 and a life of ten years was purchased on April 20 of the current year. What is the annual depreciation for each of the first two years under the following depreciation methods? 1. Double-declining-balance method: a. Year one, $________. b. Year two, $_________. 2. Units of production (activity) method (lifetime output is estimated at 110,000 units; the press produced 12,000 units in year one and 18,000 in year two): a. Year one,________ b. Year two, ________ 3. Straight-line depreciation method: a. Year one, $_____. b. Year two, $______

Answer 1

Using no. Of days will be more accurate than no. Of months in a situation like this.

No. Of days:365days(year)-31 days(january)-28 days(February)-31 days(march)-20 days(April)

=255 days.

Answer for 1a)

Depreciation rate under double declining balance method:

1/10 years×200=20%

Depreciation for year 1:

($960000×20%)×255 days/365 days=$134136.98 or$134137

Answer for 1b)

Depreciation for year 2:

($960000-$134137)×20%×255/365 dats=$165172.6 or $165173

Answer for 2a)

Depreciation under Units of production method:

For year 1:($960000-$80000)×12000 units/110000 units

=$96000

For year 2:($960000-$80000)×18000 units/110000 units

=$144000

Answer for 3a)

Depreciation under straight line method for year 1:

($960000-$80000)×1/10 years×255 days/365 days

=$61,479.45 or $61479

Answer for 3b)

Depreciation for year 2:

($960000-$80000)×1/10years=$88000