Question

Ramirez Company installs a computerized manufacturing machine in its factory at the beginning of the year at a cost of $54,800. The machine’s useful life is estimated at 10 years, or 258,000 units of product, with a $7,800 salvage value. During its second year, the machine produces 24,500 units of product. Determine the machine’s second-year depreciation and year end book value under the straight-line method.

Straight-Line Depreciation
Choose Numerator:	/	Choose Denominator:				=	Annual Depreciation Expense
Cost minus salvage	/	Estimated useful life (years)				=	Depreciation expense
$0	/					=	0
Year 2 Depreciation	$24,500
Year end book value (Year 2)

Ramirez Company installs a computerized manufacturing machine in its factory at the beginning of the year at a cost of $46,000. The machine's useful life is estimated at 5 years, or 305,000 units of product, with a $9,400 salvage value. During its second year, the machine produces 35,000 units of product.

Determine the machine’s second-year depreciation using the units-of-production method.

Units-of-production Depreciation
	Choose Numerator:	/	Choose Denominator:	=	Annual Depreciation Expense
	Beginning book value	/	Total units of production	=	Depreciation expense per unit
		/		=	0
Year	Annual Production (units)		Depreciation Expense
2

Timberly Construction negotiates a lump-sum purchase of several assets from a company that is going out of business. The purchase is completed on January 1, 2016, at a total cash price of $850,000 for a building, land, land improvements, and four vehicles. The estimated market values of the assets are building, $477,600; land, $328,350; land improvements, $39,800; and four vehicles, $149,250. The company’s fiscal year ends on December 31.

Required:

1.1 Prepare a table to allocate the lump-sum purchase price to the separate assets purchased.

Allocation of Total Cost	Appraised Value	Percent of Total Appraised Value		x	Total cost of Acquisition	Apportioned Cost
Building	$477,600	48	%	x
Land	328,350	33	%	x
Land improvements	39,800	4	%	x
Vehicles	149,250	15	%	x
Total	$995,000	100	%			$0

Record the costs of lump-sum purchase

2. Compute the depreciation expense for year 2016 on the building using the straight-line method, assuming a 15-year life and a $30,000 salvage value. (Round your answers to the nearest whole dollar.)

. Compute the depreciation expense for year 2016 on the land improvements assuming a five-year life and double-declining-balance depreciation.

Depreciation expense on land improvements

Answer 1

a. (1)

Straight-Line Depreciation
Choose Numerator:	/	Choose Denominator:				=	Annual Depreciation Expense
Cost minus salvage	/	Estimated useful life (years)				=	Depreciation expense
[54,800-7,800 ] = 47000	/	10			years	=	$4700
Year 2 Depreciation	$4700
Year end book value (Year 2)	$45400

2)

Units-of-production Depreciation
	Choose Numerator:	/	Choose Denominator:	=	Annual Depreciation Expense
	Beginning book value	/	Total units of production	=	Depreciation expense per unit
	[46,000- 9,400 ] = 36600	/	305,000	=	$0.12 per unit
Year	Annual Production (units)		Depreciation Expense
2	35,000		35000*0.12 = $4200