You are a financial analyst for Ford Motor Company and have been asked to determine the impact of alternative depreciation methods. For your analysis, you have been asked to compare methods based on a machine that cost $106,000. The estimated useful life is 13 years and the estimated residual value is $2,000. The machine has an estimated useful life in productive output of 200,000 units. Actual output was 20,000 in Year 1 and 16,000 in Year 2. Required: 1. For years 1 and 2 only, prepare separate depreciation schedules assuming: (Do not round intermediate calculations and round your final answers to the nearest dollar amount.) a. Straight-line method.

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Parrain Parrain · Answer 1 · 2020-05-11T06:39:59+02:00

Answer: Please refer to Explanation

Explanation:

a) Straight-line method.

For a straight line method, the depreciation is constant for all years and so is calculated as

Depreciation per year = (106,000 - 2,000) / 13 = 8,000 per year

That means both years 1 and 2 both have $8,000 as their Depreciation amounts.

The depreciation schedule has been attached to this answer.

b) Units of Production Method

Here we use the estimated useful life in productive output to find out how to depreciate machine.

The formula is,

Depreciation per unit = (106,000 - 2,000) / 200,000 = 0.52

That 0.52 is then used to depreciate per year in the following manner,

Year 1 = 20,000 x 0.52

= $10,400

Year 2 = 16,000 x 0.52

= $8,320

I have attached the schedule as well.

c) Double Declining Balance Method

This is an accelerated depreciation method that gets it's name because it goes at twice the rate of the Straight line method.

It is calculated by the following formula,

Depreciation rate = (1/13) x 2

= 15.38%

This 15.38% is then deducted from the balance per year.

Year 1 = 106,000 * 15.38%

= $16,307.69

Year 2 = (106,000 - 16,307.69) * 15.38%

= $13,798.82