Fiancial Accounting Help on calculating Depreciation Expense?

Question

Solo Company purchased a new machine on October 1, 2006, at a cost of $96,300. The company estimated that the machine will have a salvage value of $11,800. The machine is expected to be used for 10,000 working hours during its 5-year life.

Compute the depreciation expense under the following methods for the year indicated. (Round all answers to 0 decimal places, for computational purposes round per unit amounts to 2 decimal places.)

(a) Straight-line method:

2006 depreciation = ____________

(b) Units-of-activity method:

Assuming machine usage was 1,640 hours.

2006 depreciation = ____________

(c) Declining-balance method:

Using double the straight-line rate.

2006 depreciation = ____________

2007 depreciation = ____________

- Been working on this problem the last 2 hours and still can’t seem to get the right answer. It looked so easy when I read about it but, somehow I must be still doing something wrong because the answers I input are incorrect. Please help explain to me how to calculate the answers for each method. Thank you so much!

Answer 1

Okay,  I don't want to do the work for you, but I will give some guidelines that, hopefully, will allow you to come up with the right answers.

First, Depreciable amount is cost less salvage value

a.  Instead of thinking years think months.  The machinery has a life of 60 months and will be depreciated for 3 months in 2006.

b.  Apply the percentage of the units made to expected units over the life of the machinery to the depreciable cost.

c. With double declining balance and a five year life 2/5ths of the remaining depreciable value will be taken each year.  

Have at it!

Jerry-the-bookkeeper