ACCT 201 Principles of Financial Accounting Practice Examination Combined Chapters 5-8 Dr. Fred Barbee Solution to Short-Problem #3

Short Problem #3

On January 1, a machine costing $230,000 with a 4-year useful life and an estimated $3,000 salvage value was purchased. It was also estimated that the machine would produce 500,000 units during its life. The actual units produced during its first year of operation were 90,000. Determine the amount of depreciation expense for the first year under each of the following assumptions:

1. The company uses the straight-line method of depreciation.

   ($230,000 - $3,000) / 4 = $56,750

2. The company uses the units-of-production method of depreciation.

   ($230,000 - $3,000) / 500,000 = $0.454/unit 90,000 x $0.454 = $40,860

3. The company uses the double-declining-balance method of depreciation.

   100% / 4 = 25% x 2 = 50% = Double-declining-balance rate $230,000 x 50% = $115,000