On October 1 2016 the Allegheny Corporation purchased machin

On October 1, 2016, the Allegheny Corporation purchased machinery for $267000. The estimated service life of the machinery is 10 years and the estimated residual value is $3,000. The machine is expected to produce 480.000 units during its life Required: Calculate depreciation for 2016 and 2017 using each of the following methods. Partial year depreciation is calculated based on the number of months the asset is in service. (Do not round intermediate calculations.) 1. Straight line. Choose Numerator: ation lAnnual Depreciation Fraction of Year Depreciation Year Annual Depreciation x 2016 2017 2.Sum-of the years digits De

Solution

1) Straight line Depreciation

Annual Depreciation = Depreciable Base/Useful life [Depreciable base = Cost - Residual value]

= ($267,000 - $3,000)/10 yrs = $264,000/10 yrs = $26,400 per year

Depreciation expense for 2016 = Annual depreciation*3/12 (from october to december)

= $26,400*3/12 = $6,600

Depreciation expense for 2017 = Annual depreciation*12/12

= $26,400*12/12 = $26,400

2) Sum-of-the-year\'s digits depreciation

Sum of years = [n(n+1)/2] (where n = useful life i.e. 10 yrs)

= [10(11)]/2] = 55

Dep. exp. 10/1/16 through 12/31/16 = Depreciable base*Rate per year*Fraction of year

= $264,000*10/55*3/12 = $12,000

Total depreciation exp. 2016 = $12,000

Dep. exp. 1/1/17 through 9/30/17 = $264,000*10/55*9/12 = $36,000

Dep exp. 1/10/17 through 12/31/17 = $264,000*9/55*3/12 = $10,800

Total depreciation exp. 2017 = $36,000+$10,800 = $46,800

3) Double-Declining Balance

Dep. rate = (1/useful life)*2 = (1/10)*2 = 20%

4) One hunndred fifty percent declining balance

Rate = (1/useful life)*150% = (1/10)*150% = 15%

5) Units of production

Depreciation rate per unit = Depreciable base/Useful life in units

= $264,000/480,000 units = $0.55 per unit

2016 Dep. Exp. = Units produced in 2016*Depreciation rate per unit

= 24,000 units*$0.55 per unit = $13,200

2017 Dep. Exp. = Units produced in 2017*Depreciation rate per unit

= 39,000 units*$0.55 per unit = $21,450

	Depreciation for the Period	End of Period
Annual Period	Beginning of Period Book Value (A)	Depreciation Rate (B)	Fraction of Year (C)	Depreciation Expense (D = A*B*C)	Accumulated Depreciation	Book Value (A-D)
2016	267,000	20%	3/12	13,350	13,350	253,650
2017	253,650	20%	12/12	50,730	64,080	202,920