Question

Torge Company bought a machine for $91,000 cash. The estimated useful life was five years and the estimated residual value was $4,000. Assume that the estimated useful life in productive units is 195,000. Units actually produced were 52,000 in year 1 and 58,500 in year 2.

Required:

    Determine the appropriate amounts to complete the following schedule. (Do not round intermediate calculations.)

                                          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                              

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

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

Answer 1

Straight line depreciation = ($91,000 - $4,000) / 5 = $17,400

Units of production depreciation per unit = ($91,000 - $4,000) / 195,000 = $0.45 per unit

Double declining rate = 100 X 2 / 5 = 40%

	Depreciation expense for	Book value at the end of
Method of depreciation	Year 1	Year 2		Year 1	Year 2
Straight-line	$17,400	$17,400		$73,600	$56,200
Units of production	$23,200	$26,100		$67,800	$41,700
Double-declining method	$36,400	$21,840		$54,600	$32,760

2-a.

Depreciation for year 1 is more under double declining method.

Double-declining method would result in the lowest net income for year 1.

2-b.

Depreciation for year 2 is more under units of production method.

Units of production method would result in the lowest net income for year 2.