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    Fundamental Accounting Principles

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    P1-8B In recent years, Letterman Company purchased three machines. Because of heavy turnover in the accounting department, a different accountant was in charge of selecting the depreciation method for each machine, and various methods were selected. Information concerning the machines is summarized below.

    (see chart in attached file)

    For the declining-balance method, the company uses the double-declining rate. For the of- units of activity method, total machine hours are expected to be 24,000. Actual hours of use in the first 3 years were: 2002, 1,000; 2003, 4,500; and 2004, 5,000.

    Instructions In Microsoft Excel
    (a) Compute the amount of accumulated depreciation on each machine at December 31, 2002.
    (b) If machine 2 had been purchased on April 1 instead of January 1, what would be the depreciation expense for this machine in (1) 2000 and (2) 2001?

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    Solution Preview

    Hi there,
    <br>Machine 1:
    <br>cost = 96,000
    <br>useful life 10 yrs
    <br>salvage value = 6,000
    <br>Straight line depreciation calculation
    <br>96,000 - 6,000 = 90,000 / 10 years = 9,000 per year
    <br>By 12/31/02, four years worth of depreciation will have occurred, thus the total depreciation would be 36,000.
    <br>Machine 2
    <br>cost = 60,000
    <br>useful life 8 yrs
    <br>salvage value = 10,000 ...

    Solution Summary

    This question involves the fundamentals of accounting