solutions ch 8

# solutions ch 8 - E87 Req 1 a Straight-line Year Computation...

This preview shows pages 1–3. Sign up to view the full content.

E8–7. Req. 1 a. Straight-line: Year Computation Depreciation Expense Accumulated Depreciation Net Book Value At acquisition \$7,600 1 (\$7,600 - \$800) x 1/4 \$1,700 \$1,700 5,900 2 (\$7,600 - \$800) x 1/4 1,700 3,400 4,200 3 (\$7,600 - \$800) x 1/4 1,700 5,100 2,500 4 (\$7,600 - \$800) x 1/4 1,700 6,800 800 b. Units-of-production: (\$7,600 – \$800) ÷ 10,000 = \$0.68 per hour of output Year Computation Depreciation Expense Accumulated Depreciation Net Book Value At acquisition \$7,600 1 \$0.68 x 3,500 hours \$2,380 \$2,380 5,220 2 \$0.68 x 3,200 hours 2,176 4,556 3,044 3 \$0.68 x 2,200 hours 1,496 6,052 1,548 4 \$0.68 x 1,100 hours 748 6,800 800 c. Double-declining-balance: Year Computation Depreciation Expense Accumulated Depreciation Net Book Value At acquisition \$7,600 1 (\$7,600 - \$0) x 2/4 \$3,800 \$3,800 3,800 2 (\$7,600 - \$3,800) x 2/4 1,900 5,700 1,900 3 (\$7,600 - \$5,700) x 2/4 950 6,650 950 4 (\$7,600 - \$6,650) x 2/4 475 7,125 475 150 6,800 800 Req. 2 If the machine is used evenly throughout its life and its efficiency (economic value in use) is expected to decline steadily each period over its life, then straight-line depreciation would be preferable. If the machine is used at a consistent rate but the efficiency is expected to decline faster in the earlier years of its useful life, then an accelerated method would be appropriate [such as, double-declining-balance]. If the machine is used at different rates over its useful life and its efficiency declines with output, then the units-of-production method would be preferable because it would result in a better matching of depreciation expense with revenue earned. Too large. Net book value cannot be below residual value.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
For income tax purposes, accelerated methods may be advantageous, because an earlier tax deduction is preferable to a later tax deduction because of the time value of money. However, the accelerated methods may not satisfy the matching principle. E8–11. Req. 1 Depreciation Expense Book Value at End of Method of Depreciation Year 1 Year 2 Year 1 Year 2 Straight-line. .......................... \$15,000 \$15,000 \$50,000 \$35,000 Units-of-production. ............... 16,000 18,000 49,000 31,000 Double-declining-balance . .... 32,500 16,250 32,500 16,250 Computations: Amount to be depreciated: \$65,000 – \$5,000 = \$60,000: Straight-line: \$60,000 ÷ 4 years = \$15,000 per year Units-of-production: \$60,000 ÷ 150,000 units = \$.40 per unit Year 1: 40,000 x \$.40 = \$16,000 Year 2: 45,000 x \$.40 = \$18,000 Double-declining-balance (Rate: 2 x the straight line rate of 25% (2/4) =
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### Page1 / 9

solutions ch 8 - E87 Req 1 a Straight-line Year Computation...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online