Question

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On January 2, Year 4, Willy Lohmann Co. purchased a manufacturing machine for $864,000. The machine has an estimated life of 8 years and a $144,000 estimated salvage value. Lohmann expects to manufacture 1.8 million units over the life of the machine. During Year 5, Lohmann manufactured 300,000 units.

Enter the appropriate depreciation expense for Year 5 (the second year of ownership) for Lohmann's manufacturing machine in the designated cells below. Enter all amounts as positive values. Round all amounts to the nearest whole number.

Method of Depreciation	Depreciation Calculated
1. Straight-line
2. Double-declining balance (DDB)
3. Sum-of-the-years'-digits (SYD)
4. Units-of-production

Answer 1

1. Straight line - in this method each year depreciation will be same

= (Cost - salvage value) / years of life

= ($864000-$144000)/8

= $90000

2. Double declining method

In this method rate will be double of SLM.

Straight line rate = 1/8*100% = 12.5%

Double of SLM = 25%

Second year depreciation = $800000*75%*25% = $150000

3. Sum of the year digit method

In second year remaining life is 7 years with total of years being 36

So depreciation = ($864000-$144000)*8/36

= $160000

4. Units of production

= ($864000-$144000)*300000/1800000

= $120000

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