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Step-by-step FIRST STEP | ALL STEPS | ANSWER ONLY

Step 1 of 1
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1) DEPRECIATION UNDER DIFFERENT METHODS -

Straight line method= cost - salvage value/ no of years

Reducing balance method = 1- (slavage value/cost)1/n

Units of activity method= (cost- salvage value)/ Total life in hours * hours used
2018 Home Study tools
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Straight line
depreciation = 40000-3000 /5 = 7400
book value = 40000 - 7400 = 32600

Diminishing balance - 1 - (3000/40000)1/5 = 1- (0.075)1/5 = 0.4043 *100 = 40.43%

depreciation = 40000* 40.43% = 16172

book value = 40000 - 16172 = 23828

Units of activity
Depreciation = (40000- 3000) /200000 * 50000 = 9250
book value = 40000 - 9250 = 30750

2019
Straight line
depreciation = 40000-3000 /5 = 7400
book value = 32600 - 7400 = 25200

Diminishing balance - 1 - (3000/40000)1/5 = 1- (0.075)1/5 = 0.4043 *100 = 40.43%

depreciation = 23828 * 40.43% = 9634

book value = 23828 - 9634 = 14194

Units of activity
Depreciation = (40000- 3000) /200000 * 40000 = 7400
book value = 30750 - 7400 = 23350

2020
Straight line
depreciation = 40000-3000 /5 = 7400
book value = 25200 - 7400 = 17800

Diminishing balance - 1 - (3000/40000)1/5 = 1- (0.075)1/5 = 0.4043 *100 = 40.43%

depreciation = 14194 * 40.43% = 5739

book value = 14194 - 5739 = 8455

Units of activity
Depreciation = (40000- 3000) /200000 * 35000 = 6475
book value = 23350 - 6475 = 16875

2021

Straight line
depreciation = 40000-3000 /5 = 7400
book value = 17800 - 7400 = 10400

Diminishing balance - 1 - (3000/40000)1/5 = 1- (0.075)1/5 = 0.4043 *100 = 40.43%

depreciation = 8455 * 40.43% = 3418

book value = 8455 - 3418 = 5037

Units of activity
Depreciation = (40000- 3000) /200000 * 45000 = 8325
book value = 16875 - 8325 = 8550

2022

Straight line
depreciation = 40000-3000 /5 = 7400
book value = 10400 - 7400 = 3000

Diminishing balance - 1 - (3000/40000)1/5 = 1- (0.075)1/5 = 0.4043 *100 = 40.43%

depreciation = 5037 * 40.43% = 2037

book value = 5037 - 2037 = 3000

Units of activity
Depreciation = (40000- 3000) /200000 * 30000 = 5550
book value = 8550 - 5550 = 3000

2)

Date Account Dr Cr

2020-03-31 Depreciation Expense $1,435

Machinery and Equipment $1,435

( To depreciate machine for 3 months)

 Date Account
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2020-03-31 Cash $10,000

loss on sale of machine $2,759
Machinery and Equipment $12,759

( to sell the machine for cash )

note - value of machine on 31 march 2020 = 14194 - (14194 * 40.43% * 3/12 )

= $12759

3) Net income under Straight line method in 2018 -

net income - depreciation = $110000 - $7400 = $102600

Net income under diminishing balance method in 2018 -

net income - depreciation = $110000 - $16172 = $93828

Net income under units of activity method in 2018 -

net income - depreciation = $110000 - $9250 = $100750

Net income is more when straight line method is used whereas it is least when declining balance method is used

Explanation
Please refer to solution in this step.

Answer
The answer of all parts are solved

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