Assume you work for a company as an accountant and you have been asked to calculate the depreciation expense for each year of a new machine that your company purchased on April 1, 2021, at a cost of $ 350,000. You have estimated that the machine will have a salvage value of $15,000. The machine is expected to be used for 27,800 working hours during its 5-year life. a) Prepare the depreciation schedule for each year of the useful life under
straight line method.

b) Compute the depreciation expense for 2021, 2022 and 2023 under units-of activity method, assuming machine usage was 2700 hours in 2021 and 3500 hours and 2200 hours in 2022 and 2023 respectively.

a) Depreciation Schedule under Straight-Line Method:

Date               Cost         Depreciation     Accumulated    Net Book Value

                                           Expense        Depreciation

April 1, 2021 $350,000     $50,250            $50,250            $299,750

2022              350,000        67,000              117,250              232,750

2023              350,000        67,000             184,250               165,750

2024              350,000        67,000            251,250                 98,750

2025              350,000        67,000            318,250                  31,750

b) Depreciation expense under the units-of-activity method:

2021       2,700 * $12.05 = $32,535

2022     3,500 * $12.05 = $42,175

2023     2,200 * $12.05 = $26,510

Explanation:

a) Data and Calculations:

Cost of equipment on April 1, 2021 = $350,000

Estimated salvage value = $15,000

Depreciable amount = $335,000

Estimated useful life = 5 years

Annual Depreciation:

Straight-line method = $67,000 ($335,000/5)

Expected machine usage hours = 27,800

Depreciation rate under the unit-of-activity method = $335,000/27,800

= $12.05

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