Question

Problem 7-5B Determine depreciation under three methods (LO7-4)

[The following information applies to the questions displayed below.]

Cheetah Copy purchased a new copy machine. The new machine cost $134,000 including installation. The company estimates the equipment will have a residual value of $33,500. 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:

Required information Problem 7-5B Determine depreciation under three methods (LO7-4) [The following information applies to the questions displayed below.] Cheetah Copy purchased a new copy machine. The new machine cost $134,000 including installation. The company estimates the equiipment will have a residual value of $33,500. 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 2,800 2,000 2,000 3,200 1 2 3 4 Problem 7-5B Part 1 Required: 1. Prepare a depreciation schedule for four years using the straight-line method. (Do not round your intermediate calculations.)

Answer 1

Solution a
Cost of assets	$ 134,000.00
Salvage value	$   33,500.00
Depreciable value	$ 100,500.00
SLM depreciation=	Depreciable value/useful life
SLM depreciation=	100500/4	$                               25,125.00
Year	Depreciation	Accumulated depreciation	Book Value
1	$         25,125	$                                     25,125	$      108,875
2	$         25,125	$                                     50,250	$         83,750
3	$         25,125	$                                     75,375	$         58,625
4	$         25,125	$                                  100,500	$         33,500
Solution b
Useful life	4
Annual SLM depreciation	1/4	25%
Double declining depreciation	50.00%
Year	Beginning book value	Depreciation	Depreciation	Accumulated depreciation	Yearend Book Value
	A	B	C= A*B	D	E
1	$      134,000	50%	$         67,000	$   67,000	$   67,000
2	$         67,000	50%	$         33,500	$ 100,500	$   33,500
3	$         33,500	50%	$                 -	$ 100,500	$   33,500
4	$         33,500	50%	$                 -	$ 100,500	$   33,500
Since book value has already reached salvage value hence no further depreciation will be charged in years 3 and 4.
Solution C
Calculation of depreciation rates
Year	Activity	Percentage
		Annual activity/Total activity
1	2,800	28.00%
2	2,000	20.00%
3	2,000	20.00%
4	3,200	32.00%
	10,000
Year	Depreciable value	Depreciation	Depreciation	Accumulated depreciation	Yearend Book Value
	A	B	C= A*B	D	E
1	$      100,500	28%	$         28,140	$   28,140	$ 105,860
2	$      100,500	20%	$         20,100	$   48,240	$   85,760
3	$      100,500	20%	$         20,100	$   68,340	$   65,660
4	$      100,500	32%	$         32,160	$ 100,500	$   33,500