Question

Torge Company bought a machine for $82,000 cash. The estimated useful life was five years and the estimated residual value was $7,000. Assume that the estimated useful life in productive units is 171,000. Units actually produced were 45,600 in year 1 and 51,300 in year 2.

1. Determine the appropriate amounts to complete the following schedule.

	Depreciation Expense for		Book Value at the End of
Method of Depreciation	Year 1	Year 2	Year 1	Year 2
Straight-line
Units-of-production
Double-declining-balance

2-a. Which method would result in the lowest net income for year 1?

• Straight-line

• Double-declining-balance

• Units-of-production

2-b. Which method would result in the lowest net income for year 2?

• Units-of-production

• Double-declining-balance

• Straight-line

3. Which method would result in the lowest fixed asset turnover ratio for year 1?

• Units-of-production

• Double-declining-balance

• Straight-line

Answer 1

1. Determine the appropriate amounts to complete the following schedule.

	Depreciation Expense for Book Value at the End of Method of Depreciation Year 1 Year 2 Year 1 Year 2 Straight-line (82000-7000/5) = 15000 15000 82000-15000 = 67000 67000-15000 = 52000 Units-of-production 20000 22500 82000-20000 = 62000 62000-22500 = 39500 Double-declining-balance 82000*40% = 32800 19680 49200 29520

2-a. Which method would result in the lowest net income for year 1?

• Double-declining-balance

2-b. Which method would result in the lowest net income for year 2?

• Units-of-production

3. Which method would result in the lowest fixed asset turnover ratio for year 1

• Straight-line