1 answer

Question 2 (20 marks) Sunshine Corporation purchased a new machine on Jan 4, 2018 for $215,000...

Question:

Question 2 (20 marks) Sunshine Corporation purchased a new machine on Jan 4, 2018 for $215,000 cash. The machine has a useful
Question 2 (20 marks) Sunshine Corporation purchased a new machine on Jan 4, 2018 for $215,000 cash. The machine has a useful life of ten years or of 30,000 hours. After the useful life the machine will have a residual value of $2,000. The machine was used for 4,000 hours in 2018 and 5,500 hours in 2019. Required: a. Calculate the depreciation expense for 2018 and 2019 under each of the following methods: i. Straight-line (3 marks) ii. Double diminishing-balance (5 marks) iii. Units-of-production (5 marks) b. Calculate the carrying amount at the end of 2019 for the machine when the company is using the Straight-line depreciation method. (3 marks) c. Record the journal entry for the cash purchase of the machine on Jan 4, 2018 and for its depreciation expense for the year ended December 31, 2019 under the units-of-production method. (4 marks)

Answers

Part A
Straight Line method
Year Cost of asset Depreciable cost Depreciation rate Depreciation expenses Accumulated Depreciation Book value
At Acquistion $215,000 $215,000
2018 $213,000 10.00% $21,300 $21,300 $193,700
2019 $213,000 10.00% $21,300 $42,600 $172,400
Double Declining balance
Date Cost of asset Book Value DDB Rate Depreciation expenses Accumulated Depreciation Book value
At Acquistion $215,000 $215,000
2018 $215,000 20.00% $43,000 $43,000 $172,000
2019 $172,000 20.00% $34,400 $77,400 $137,600
Units of Production
Date Depreciable cost Depreciation per hour No. of hours Depreciation expenses Accumulated Depreciation Book value
At Acquistion $215,000
2018 $213,000 $7.10 4000 $28,400 $28,400 $186,600
2019 $213,000 $7.10 5500 $39,050 $67,450 $147,550
Part B(Also calculated above)
Carrying Amount at the end of 2019 under straight line method =$215,000 - $21,300 - $21,300 =$172,400
Part C
The Depreciation expense in 2019 under units ofproduction method as calculated in Part a is $39,050
Date Account explanation Debit Credit
Jan 4,2018 Machine $                     215,000
Cash $                           215,000
(to machine purchased in cash)
Dec 31,2019 Depreciation expense $                       39,050
Accumulated Depreciation-Machine $                             39,050
(to depreciation charged for 2019)
.

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