Tech Manufacturing Corporation reports the following situations in 2020 with respect to its high-tech manufacturing equipment. a.Machine
Question:
Tech Manufacturing Corporation reports the following situations in 2020 with respect to its high-tech manufacturing equipment.
a.Machine 1 was acquired at a cost of $872,000 in 2017.The machine was depreciated on a straight-line basis over its expected six-year life.At the end of 2020, management decided that this machine should have been depreciated over a total useful life of eight years.Salvage value, expected to be negligible, has not changed.
b.Machine 2 was acquired at a cost of $448,500 in 2019.It was being depreciated on a declining-balance method using a rate of 40%.Salvage values were expected to be minimal.In 2020, management decided that, based on the usage patterns seen to date, unit-of-production would be a more appropriate method of depreciation.The machine is used sporadically and suffers from wear and tear only as used (i.e., obsolescence is not much of a factor in the loss of utility).Estimated units-of-production total 350,000 of which 75,000 units were produced in 2019 and 30,000 units in 2020.
c.Machine 3 was acquired in 2017 at a cost of $325,000.Management discovered in 2020 that the machine was expensed in 2017, even though it had a useful life of 10 years, with a 10% salvage value.Straight-line depreciation should have been used for this asset.
For all depreciation methods, the company follows a policy of recording a full year of depreciation charged in the first year, but no depreciation is charged in the year of disposal.
Intermediate Accounting Volume 2
ISBN: 9781260881240
8th Edition
Authors: Thomas H. Beechy, Joan E. Conrod, Elizabeth Farrell, Ingrid McLeod-Dick, Kayla Tomulka, Romi-Lee Sevel