Exercise II

Depreciation methods

Answer the following questions and solve the problem:

1. How to calculate straight line depreciation step by step?

2. How to calculate unite of production depreciation step by step?

3. How to calculate the declining-balance method also known as the double-declining-balance method step by step?

On January 2, 2015 Gillette Co. purchases and installs a new machine costing $300,000 with a five-year life and an estimated $50,000 salvage value. Management estimates the machine will produce 190,000 units of product during its life. Actual production of units is as follows: year 2015 – 34,000 units; year 2016 – 46,000 units; year 2017 – 56,000 units; year 2018 – 28,000 units; year 2019 – 26,000 units, etc.

Compute depreciation expense, accumulate depreciation, and book value for the first four years using the following depreciation methods:

(1) the straight-line method,

(2) the units-of-production method, and

(3) the declining-balance method also known as the double-declining-balance method.

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