Question

Solar Innovations Corporation bought a machine at the beginning of the year at a cost of $22,000. The estimated useful life was five years and the residual value was $2,000. Assume that the estimated productive life of the machine is 10,000 units. Expected annual production was year 1, 2,000 units; year 2, 3,000 units; year 3, 2,000 units; year 4, 2,000 units, and year 5, 1,000 units. 0.49 points Required: 1. Complete a depreciation schedule for each of the alternative methods. a. Straight-line. b. Units-of-production. c. Double-declining-balance. eBook 2. Which method will result in the highest net income in year 2? Does this higher net income mean the machine was used more efficiently under this depreciation method? Print References Complete this question by entering your answers in the tabs below. Req 1A Reg 1B Reg 1C Req 2A Reg 2B Complete a depreciation schedule for Straight-line method. (Do not round intermediate calculations.) Balance Sheet Income Statement Depreciation Expense Year Cost Accumulated Depreciation Book Value At acquisition

Answer 1

SOLUTION 1 (A)
	CALCULATION OF THE DEPRECIATION AS PER STRAIGHT LINE METHOD FOR MACHINE
	Purchase Cost of Machine	22,000
	Less: Salvage Value	2,000
	Net Value for Depreciation	20,000
	Usefule life of the Assets	5 years
	Depreciation per year = Value for Depreciation / 5 years =	4,000
	Total Depreciation for the per year	4,000
	DEPRECIATION SCHEDULE - STRAIGHT LINE METHOD
		Income Statement		Balance Sheet
	Year	Depreciation Expenses	Cost	Accumulation Depreciation	Book Value
	At Acquisition		$              22,000		$                       22,000
	Depreciation for Year 1	$                        4,000		$                4,000	$                       18,000
	Depreciation for Year 2	$                        4,000		$                8,000	$                       14,000
	Depreciation for Year 3	$                        4,000		$              12,000	$                       10,000
	Depreciation for Year 4	$                        4,000		$              16,000	$                         6,000
	Depreciation for Year 5	$                        4,000		$              20,000	$                         2,000
SOLUTION 1 (B)
	CALCULATION OF THE DEPRECIATION AS PER UOP METHOD
	Purchase Cost of Equipment =		$              22,000
	Less: Salvage Value =		$                2,000
	Net Value for Depreciation =		$              20,000
	Expected to Produce Units=		$              10,000	Units
	Depreciation per unit =		$                         2	Per Unit Cost
	($ 20,000 / 10,000 Units)
	DEPRECIATION SCHEDULE - UNIT OF PRODUCTION METHOD
		Income Statement		Balance Sheet
	Year	Depreciation Expenses	Cost	Accumulation Depreciation	Book Value
	At Acquisition		$              22,000		$                       22,000
	Depreciation for Year 1 (2000 Units X $ 2)	$                        4,000		$                4,000	$                       18,000
	Depreciation for Year 2 (3000 Units X $ 2)	$                        6,000		$              10,000	$                       12,000
	Depreciation for Year 3 (2000 Units X $ 2)	$                        4,000		$              14,000	$                         8,000
	Depreciation for Year 4 (2000 Units X $ 2)	$                        4,000		$              18,000	$                         4,000
	Depreciation for Year 5 (1000 Units X $ 2)	$                        2,000		$              20,000	$                         2,000
SOLUTION 1 (C)
	CALCULATION OF THE DEPRECIATION AS PER DOUBLE DECLINE METHOD FOR MACHINE C
	Rate of Depreciation =
	Rate of Depreciation = (1 / 5 Years )	0.20 or 20.00%
	(Depreication / Purchase price )
	Double decline deprection rate = 20% * 2 =	40.0%
	Depreciation for the year 1 =
	Purchase Value (Including installantion and delivery Cost) =	22,000
	Depreciation for the year 1 @ 40.00% =	8,800
	Closing Value of year 1	13,200
	Opening Balance of the year 2	13,200
	Depreciation for the year 2 @ 40.00% =	5,280
	Closing Value of year 2	7,920
	Opening Balance of the year 3	7,920
	Depreciation for the year 3 @ 40.00% =	3,168
	Closing Value of year 3	4,752
	Opening Balance of the year 4	4,752
	Depreciation @ 40%	1,901
	Closing Value of year 4	2,851
	Opening Balance of the year 5	2,851
	Depreciation @ 40%	1,140
	Closing Value of year 5	1,711
	DEPRECIATION SCHEDULE - DOUBLE DECLINE BALANCE
		Income Statement		Balance Sheet
	Year	Depreciation Expenses	Cost	Accumulation Depreciation	Book Value
	At Acquisition		$              22,000		$                       22,000
	Depreciation for Year 1 (2000 Units X $ 2)	$                        8,800		$                8,800	$                       13,200
	Depreciation for Year 2 (3000 Units X $ 2)	$                        5,280		$              14,080	$                         7,920
	Depreciation for Year 3 (2000 Units X $ 2)	$                        3,168		$              17,248	$                         4,752
	Depreciation for Year 4 (2000 Units X $ 2)	$                        1,901		$              19,149	$                         2,851
	Depreciation for Year 5 (1000 Units X $ 2)	$                        1,140		$              20,289	$                         1,711
SOLUTION ( 2 ) (A)
	Straight Line method will produce higher net income in year 2 because depecaition expenses in this is lowest in straight line mehtod.
SOLUTION ( 2 ) (B)
	No , Method of depreciation is only a chargin method for expenses it does not means machine is more used.