Sandhill Limited purchased a machine on account on April 1, 2021, at an invoice price of $332,220.
Question:
Sandhill Limited purchased a machine on account on April 1, 2021, at an invoice price of $332,220. On April 2, it paid $2,170 for delivery of the machine. A one-year, $3,963 insurance policy on the machine was purchased on April 5. On April 19, Sandhill paid $7,460 for installation and testing of the machine. The machine was ready for use on April 30.
Sandhill estimates the machine’s useful life will be five years or 6,186 units with a residual value of $82,570. Assume the machine produces the following numbers of units each year: 976 units in 2021; 1,407 units in 2022; 1,383 units in 2023; 1,211 units in 2024; and 1,209 units in 2025. Sandhill has a December 31 year end.
Calculate the annual depreciation and total depreciation over the asset’s life using: (Round the depreciation cost per unit to 2 decimal places. Round answers to 0 decimal places, e.g. 5,275.)
(1) Straight-line method
(2) Double-diminishing-balance method
(3) Units-of-production method
(4) Which method causes net income to be lower in the early years of the asset’s life?
Financial Accounting Tools for Business Decision Making
ISBN: 978-1118644942
6th Canadian edition
Authors: Paul D. Kimmel, Jerry J. Weygandt, Donald E. Kieso, Barbara Trenholm, Wayne Irvine