Jimmy Company purchase a machine for $40,000 on 1 January 2018. The company expects the service life
Question:
Jimmy Company purchase a machine for $40,000 on 1 January 2018. The company expects the service life of the machine to be 5 years. During that time, it is expected that the machine's useful life will be 200,000 hours. The anticipated salvage value is $3,000. The machine was disposed of after 5 years of use. Actual hour used during the five years of the asset's life was:
In 2018: 50,000 hours used
In 2019: 40,000 hours used
In 2020: 35,000 hours used
In 2021: 45,000 hours used
In 2022: 30,000 hours used
Required:
1. Prepare the 5 years depreciation schedule for the machine. Find the depreciation expense and the book value of the machine for each of the 5 years using the following depreciation methods
- Straight line
- Declining Balance method
- Units of Activity
2. Assume on 31 March 2020, the company sell the machine for $10,000. Prepare journal entry to record the disposal of the machine using declining balance method.
3. Suppose profit before depreciation of Jimmy was $110,000 for 2018, calculate profit after depreciation for each depreciation method. What are your conclusion about relationships between depreciation method and net income?
Intermediate accounting
ISBN: 978-0077647094
7th edition
Authors: J. David Spiceland, James Sepe, Mark Nelson