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2 April, 06:49

E9-6 Computing Depreciation under Alternative Methods [LO 9-3] 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. Required: Complete a depreciation schedule for each of the alternative methods. a. Straight-line. b. Units-of-production. Which method will result in the highest net income in year 2

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  1. 2 April, 07:32
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    Straight line method result the $14,000 highest net income in 2nd year.

    Explanation:

    According to the scenario, computation of the given data are as follows:-

    Straight Line Method Depreciation Method = (Purchase Value - Residual Value) : Useful Life

    = ($22,000 - $2,000) : 5

    = $20,000 : 5 = $4,000

    Straight Line Method:-

    Year Cost ($) Dep. Amount / year Accumulated Dep. Book Value

    1 22,000 4,000 4,000 18,000

    2 22,000 4,000 8,000 14,000

    3 22,000 4,000 12,000 10,000

    4 22,000 4,000 16,000 6,000

    5 22,000 4,000 20,000 2,000

    Unit of Production Method:-

    Year Cost Units Calculation Of Dep. Dep. Amount/Year Accumulated Dep. Book Value ($)

    1 22,000 2,000 (22,000-2,000) * 2,000:10,000 4,000 4,000 18,000

    2 22,000 3,000 (22,000-2,000) * 3,000:10,000 6,000 10,000 12,000

    3 22,000 2,000 (22,000-2000) * 2,000:10,000 4,000 14,000 8,000

    4 22,000 2,000 (22,000-2,000) * 2,000:10,000 4,000 18,000 4,000

    5 22,000 1,000 (22,000-2,000) * 1,000:10,000 2,000 20,000 2,000

    Total 10,000

    Calculation of Depreciation = (Machine Value - Residual Value) * No. of Unit : Total Unit

    Straight line method result the $14,000 highest net income in 2nd year.
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