Question

Sketches Inc. purchased a machine on January 1, 2016. The cost of the machine was $41,000. Its estimated residual value was $13,000 at the end of an estimated 5-year life. The company expects to produce a total of 20,000 units. The company produced 1,500 units in 2016 and 1,950 units in 2017.

Required: a. Calculate depreciation expense for 2016 and 2017 using the straight-line method.

b. Calculate the depreciation expense for 2016 and 2017 using the units-of-production method. (Do not round your intermediate calculations. Round your final answers to the nearest whole dollar.)

c. Calculate depreciation expense for 2016 through 2020 using the double-declining balance method. (Round your final answer to nearest dollar value.)

Answer 1

A.

Depreciation under Straight-line method = (Cost - Residual value) / Estimated useful life

= ($41,000 - $13,000) / 5

= $5,600

Depreciation for 2016 = $5,600

Depreciation for 2017 = $5,600

B.

Depreciation cost per unit = (Cost - Residual value) / Expected units

= ($41,000 - $13,000) / 20,000

= $1.4

Depreciation for 2016 = 1,500 units * $1.4 = $2,100

Depreciation for 2017 = 1,950 units * $1.4 = $2,730

C.

Depreciation under Double declining balance method = (Cost - Accumulated depreciation) / Useful life * 2

Depreciation for 2016 = ($41,000 - $0) / 5 * 2 = $16,400

Depreciation for 2017 = ($41,000 - $16,400) / 5 * 2 = $9,840

Depreciation for 2018 = $1,760 ($41,000 - $13,000 - $16,400 - $9,840)

Depreciation for 2019 = $0

Depreciation for 2020 = $0

* Depreciation under Double declining balance is limited to residual value. So, depreciation in 2018 = $1,760