Union Company acquired machinery on January 2, 20X1, for $315,000. The machinery’s estimated useful life is 10 years, and the estimated residual value is $15,000. Union estimates that the machine will produce 15,000 units of product and that 20,000 direct labor hours will be utilized over the useful life of the machine. During 20X1, Union produced 1,200 units of product and used 2,100 direct labor hours. Required: Calculate depreciation expense for 20X1 under each of the following methods: Straight-line method. Production method (units of output). Use method (units of input—direct labor hours). Sum-of-the-years’ digits method. (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.) Double-declining balance method.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Union Company acquired machinery on January 2, 20X1, for $315,000. The machinery’s estimated useful life is 10 years, and the estimated residual value is $15,000. Union estimates that the machine will produce 15,000 units of product and that 20,000 direct labor hours will be utilized over the useful life of the machine. During 20X1, Union produced 1,200 units of product and used 2,100 direct labor hours.
Required:
Calculate
- Straight-line method.
- Production method (units of output).
- Use method (units of input—direct labor hours).
- Sum-of-the-years’ digits method. (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.)
- Double-declining balance method.
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