Part 1. A machine costing $22,000 with a five-year life and an estimated $2,000 salvage value is installed on January 1. The manager estimates the machine will produce 1,000 units of product during its life. It actually produces the following units: 200 in Year 1, 400 in Year 2, 300 in Year 3, 80 in Year 4, and 30 in Year 5. The total units produced by the end of Year 5 exceed the original estimate—this difference was not predicted. (The machine must not be depreciated below its estimated salvage value.) Compute depreciation expense for each year and total depreciation for all years combined under straight-line, units-of-production, and double-declining-balance. Part 2. In early January, a company acquires equipment for $3,800. The company estimates this equipment has a useful life of three years and a salvage value of $200. On January 1 of the third year, the company changes its estimates to a total four-year useful life and zero salvage value. Using the straight-line method, what is depreciation expense for the third year?
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Part 1. A machine costing $22,000 with a five-year life and an estimated $2,000 salvage value is installed
on January 1. The manager estimates the machine will produce 1,000 units of product during its life. It
actually produces the following units: 200 in Year 1, 400 in Year 2, 300 in Year 3, 80 in Year 4, and 30 in
Year 5. The total units produced by the end of Year 5 exceed the original estimate—this difference was not
predicted. (The machine must not be
expense for each year and total depreciation for all years combined under straight-line, units-of-production,
and double-declining-balance.
Part 2. In early January, a company acquires equipment for $3,800. The company estimates this equipment
has a useful life of three years and a salvage value of $200. On January 1 of the third year, the company
changes its estimates to a total four-year useful life and zero salvage value. Using the straight-line
method, what is depreciation expense for the third year?
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