2) JI Industries purchased a machine that cost $540,000. It is expected that the machine will last 20 years and have a $20,000 salvage value. It is also expected that the machine will be able to be produce 1,000,000 units.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
Question

Letter d of number 2 please.

**Depreciation Calculation Methods**

**Scenario:** JJ Industries purchased a machine for $540,000. It is expected that the machine will last 20 years and have a $20,000 salvage value. The machine is expected to produce 1,000,000 units.

### a. Straight-Line Method

Calculate the 1st and 2nd year of depreciation using the straight-line method:

\[ \text{Depreciation per year} = \frac{\text{Cost} - \text{Salvage Value}}{\text{Useful Life}} \]

\[ (\$540,000 - \$20,000) / 20 = \$26,000 \text{ depreciation per year.} \]

### b. Double Declining Balance Method

Calculate the 1st and 2nd year of depreciation:

\[ \left(\frac{1}{20}\right) = \text{(5\% straight-line rate)} \times 2 = 10\% \]

- **Year 1:** \((\$540,000 - \$0) \times 0.10 = \$54,000\)
- **Year 2:** \((\$540,000 - \$54,000) \times 0.10 = \$48,600\)

### c. Units of Production Method

Assume 165,000 units were produced in the 1st year. Calculate the depreciation for the machine using the units of production method:

\[ \frac{\text{Cost} - \text{Salvage Value}}{\text{Total Estimated Units of Production}} \times \text{Units of Production in current accounting period} \]

\[ \frac{\$540,000 - \$20,000}{1,000,000 \text{ units}} = \$0.52 \text{ per unit} \]

### d. Book Value Calculation

Calculate the book value of the truck at the end of the 1st year under each method.
Transcribed Image Text:**Depreciation Calculation Methods** **Scenario:** JJ Industries purchased a machine for $540,000. It is expected that the machine will last 20 years and have a $20,000 salvage value. The machine is expected to produce 1,000,000 units. ### a. Straight-Line Method Calculate the 1st and 2nd year of depreciation using the straight-line method: \[ \text{Depreciation per year} = \frac{\text{Cost} - \text{Salvage Value}}{\text{Useful Life}} \] \[ (\$540,000 - \$20,000) / 20 = \$26,000 \text{ depreciation per year.} \] ### b. Double Declining Balance Method Calculate the 1st and 2nd year of depreciation: \[ \left(\frac{1}{20}\right) = \text{(5\% straight-line rate)} \times 2 = 10\% \] - **Year 1:** \((\$540,000 - \$0) \times 0.10 = \$54,000\) - **Year 2:** \((\$540,000 - \$54,000) \times 0.10 = \$48,600\) ### c. Units of Production Method Assume 165,000 units were produced in the 1st year. Calculate the depreciation for the machine using the units of production method: \[ \frac{\text{Cost} - \text{Salvage Value}}{\text{Total Estimated Units of Production}} \times \text{Units of Production in current accounting period} \] \[ \frac{\$540,000 - \$20,000}{1,000,000 \text{ units}} = \$0.52 \text{ per unit} \] ### d. Book Value Calculation Calculate the book value of the truck at the end of the 1st year under each method.
Expert Solution
video

Learn your way

Includes step-by-step video

steps

Step by step

Solved in 4 steps

Blurred answer
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education