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.
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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F585e4a80-646c-4418-ada9-cb992a2ce44b%2F131f70c6-3bc8-4a04-8e37-d743c9a11f06%2Fdkl137r.jpeg&w=3840&q=75)
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.
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