Cheetah Copy purchased a new copy machine The new machine co

Cheetah Copy purchased a new copy machine. The new machine cost $136,000 including installation. The company estimates the equipment will have a residual value of $34,000. Cheetah Copy also estimates it will use the machine for four years or about 8,000 total hours. Actual use per year was as follows:

Year	Hours Used
1	2,900
2	1,900
3	1,900
4	3,500

Cheetah Copy purchased a new copy mochine. The new machlne cost $136,000 Including Installation. The company estimates the equlpment will have e resldual value of $34,000. Cheetah Copy also estimates It will use the machine for four years or about 8,000 total hours. Actual use per year was as follows: Year Hours Used 2,900 1900 1900 3.500 value 5.00 points Required Information Required: 1. Prepare a depreclation schedule for four years using the straight-line method. (Do not round your intermediate calculations.) H COPY Depreciation Schedule-Straight-Line End of Year Amounts Depreciation Accumulated Year Book Value Expense TotalS

Solution

Solution

Cheetah Copy

Cheetah Copy

Depreciation Schedule - Straight Line

End of Year Amounts

Year

Depreciation Expense

Accumulated Depreciation

Book Value

1

$25,500

$25,500

$110,500

2

$25,500

$51,000

$85,000

3

$25,500

$76,500

$59,500

4

$25,500

$102,000

$34,000

Depreciation expense = depreciable base x 1/useful life

Depreciable base = cost – residual value

Cost = $136,000

Residual value = $34,000

Useful life = 4 years

Depreciable base = 136,000 – 34,000 = $102,000

Depreciation expense = 102,000/4 = $25,500

Under straight-line method, depreciation expense would remain constant throughout the useful life of the asset.

Hence, depreciation expense for each of the four years = $25,500

Cheetah Copy

Depreciation Schedule - Double Declining Balance

End of Year Amounts

Year

Depreciation Expense

Accumulated Depreciation

Book Value

1

$68,000

$68,000

$68,000

2

$34,000

$102,000

$34,000

3

$0

$102,000

$34,000

4

$0

$102,000

$34,000

Depreciation expense = cost x 2 x straight line depreciation rate

Straight line depreciation rate = ¼ =25%

Double declining depreciation rate = 2 x 25% = 50%

Cost = $136,000

Depreciation expense for Year 1 = 136,000 x 50% = $68,000

Depreciation expense for Year 2 = depreciation rate x book value

Book value = cost – accumulated depreciation

Book value = 136,000 – 68,000 = $68,000

Depreciation expense for Year 2 = 68,000 x 50% = $34,000

Since the book value cannot be below the residual value, no depreciation expense is provided for Years 3 and 4.

Cheetah Copy

Depreciation Schedule - Activity Based Method

End of Year Amounts

Year

Depreciation Expense

Accumulated Depreciation

Book Value

1

$36,975

$36,975

$99,025

2

$24,225

$61,200

$74,800

3

$24,225

$85,425

$50,575

4

$16,575

$102,000

$34,000

Depreciation expense = (depreciable base x actual use per year)/total estimated activity

Depreciable base = cost – residual

= 136,000 – 34,000 = $102,000

Depreciation expense for Year 1 = (102,000 x 2,900 hours)/8,000 hours = $36,975

Depreciation expense for Year 2 = (102,000 x 1,900 hours)/8,000hours = $24,225

Depreciation expense for Year 3 = (102,000 x 1,900 hours)/8,000 hours = $24,225

Depreciation expense for Year 4 = (102,000 x 3,500 hours)/8,000 hours = $44,625

Though the depreciation expense for Year 4 comes to $44,625, it would make book value to fall below the residual value of $34,000. Hence, the depreciation expense in Year 4 is limited to $16,575 (50,575 – 34,000 = 16,575).

	Cheetah Copy
	Depreciation Schedule - Straight Line
	End of Year Amounts
Year	Depreciation Expense	Accumulated Depreciation	Book Value
1	$25,500	$25,500	$110,500
2	$25,500	$51,000	$85,000
3	$25,500	$76,500	$59,500
4	$25,500	$102,000	$34,000