Chapter 9, Problem 15E

Computing Depreciation and Book Value for Two Years Using Alternative Depreciation Methods and Interpreting the Impact on the Fixed Asset Turnover Ratio

Torge Company bought a machine for $65,000 cash. The estimated useful life was five years and the estimated residual value was $5,000. Assume that the estimated useful life in productive units is 150,000. Units actually produced were 40,000 in year 1 and 45,000 in year 2.

Required:

1. 1. Determine the appropriate amounts to complete the following schedule. Show computations.

  

1. 2. Which method would result in the lowest net income for year 1? For year 2?
2. 3. Which method would result in the lowest fixed asset turnover ratio for year 1? Why?