Cirrus Ltd. purchased a new machine on April 4, 2014, at a cost of $172,000. The company
Question:
Cirrus Ltd. purchased a new machine on April 4, 2014, at a cost of $172,000. The company estimated that the machine would have a residual value of $16,000. The machine is expected to be used for 10,000 working hours during its four-year life. Actual machine usage was 1,500 hours in 2014; 2,200 hours in 2015; 2,300 hours in 2016; 2,100 hours in 2017; and 1,900 hours in 2018. Cirrus has a December 31 year end.
Instructions
(a) Calculate depreciation for the machine under each of the following methods:
(1) Straight-line,
(2) Diminishing-balance using double the straight-line rate, and
(3) Units-of-production for 2014 through to 2018.
(b) Which method results in the highest depreciation expense over the life of the asset? Highest net income? Highest cash flow?
Step by Step Answer:
Financial Accounting Tools for Business Decision Making
ISBN: 978-1119368458
7th Canadian edition
Authors: Paul D. Kimmel, Jerry J. Weygandt, Donald E. Kieso, Barbara Trenholm, Wayne Irvine