18 200 points E915 Computing Depreciation and Book Value for

18. 2.00 points E9-15 Computing Depreciation and Book Value for Two Years Using Alternative Depreciation Methods and Interpreting the Impact on the Fixed Asset Turnover Ratio [LO 9-3, LO 9-7 Torge Company bought a machine for $99,000 cash. The estimated useful life was five years and the estimated residual value was $6,000. Assume that the estimated useful life in productive units is 201,000 Units actually produced were 53,600 in year 1 and 60,300 in year 2. Required: 1. Determine the appropriate amounts to complete the following schedule. (Do not round intermediate calculations. Depreciation Expense for Book Value at the End of Method of Depreciation Year 1 Straight-line Units-of-production Double-declining-balance Year 2 Year 1 Year 2

Solution

Depreciation Expense for

Book Value at the end of

Method of Depreciation

Year 1

Year 2

Year 1

Year 2

Straight Line

$18,600

$18,600

$80,400

$61,800

Units of production

$24,800

$27,900

$74,200

$46,300

Double Declining Balance

$39,600

$ 23,760

$59,400

$ 35,640

Straight Line Method

Depreciation = [ Cost – Residual Value ] / Useful Life

Depreciation

YEAR 1 = [$99,000 – 6,000] / 5 Years = $18,600

YEAR 2 = [$99,000 – 6,000] / 5 Years = $18,600

Book Value at the end of

YEAR – 1 = $99,000 – 18,600 = $80,400

YEAR – 2 = $80,400 – 18,600 = $61,800

Units of production Method

Depreciation

YEAR - 1= [$99,000 – 6,000] x [53,600/201,000] = $24,800

YEAR - 2= [$99,000 – 6,000] x [60,300/201,000] = $27,900

Book Value at the end of

YEAR – 1 = $99,000 – 24,800 = $74,200

YEAR – 2 = $4,200 – 27,900 = $46,300

Double Declining Balance

Depreciation under Double Declining Balance = Beginning Balance x 2 x Straight Line Depreciation Rate

*Straight Line Depreciation Rate = 1 / Useful Life = 1 / 5 = 0.20

Depreciation

YEAR - 1= $99,000 x 2 x 0.20 = $39,600

YEAR - 2= [$99,000 – 39,600] x 2 x 0.20 = $ 23,760

Book Value at the end of

YEAR – 1 = $99,000 – 39,600 = $59,400

YEAR – 2 = $59,400 – 23,760 = $ 35,640

	Depreciation Expense for	Book Value at the end of
Method of Depreciation	Year 1	Year 2	Year 1	Year 2
Straight Line	$18,600	$18,600	$80,400	$61,800
Units of production	$24,800	$27,900	$74,200	$46,300
Double Declining Balance	$39,600	$ 23,760	$59,400	$ 35,640