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# A high-speed multiple-bit drill press

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Depreciation Methods.
A high-speed multiple-bit drill press costing \$300,000 has an estimated salvage value of \$25,000 and a life of ten years. What is the annual depreciation for each of the first two full years under the following depreciation methods?

1. Double-declining-balance method:

a. Year one, \$______________.

b. Year two, \$______________.

2. Units of production (activity) method (lifetime output is estimated at 110,000 units; the press produced 12,000 units in year one and 18,000 in year two):

a. Year one, \$______________.

b. Year two, \$______________.

3. Sum-of-the-years'-digits method:

a. Year one, \$______________.

b. Year two, \$______________.

4. Straight-line depreciation method:

a. Year one, \$______________.

b. Year two, \$______________.

Current Liabilities.
Ritt Company includes 1 coupon in each box of soap powder that it packs, 20 coupons being redeemable for a premium consisting of a kitchen utensil. In 2004, Ritt Company purchased 9,000 premiums at \$1.00 each and sold 270,000 boxes of soap powder @ \$4.00 per box. Based on past experience, it is estimated that 60% of the coupons will be redeemed. During 2004, 72,000 coupons were presented for redemption.

During 2005, 14,000 premiums were purchased at \$1.10. The company sold 600,000 boxes of soap at \$4.00 and 250,000 coupons were presented for redemption.

Instructions
Prepare all the entries that would be made relative to sales of soap powder and to the premium plan in both 2004 and 2005. Assume a FIFO inventory flow.

#### Solution Preview

Depreciation Methods.
A high-speed multiple-bit drill press costing \$300,000 has an estimated salvage value of \$25,000 and a life of ten years. What is the annual depreciation for each of the first two full years under the following depreciation methods?

1. Double-declining-balance method:

(2 x Straight-line rate) x (Cost - Depreciation Taken in Prior Periods) = Depreciation for the Period
Straight-line rate = 1/10 years = 0.10 or 10%
Year one (2 x 10%) x (\$300,000 - 0) = \$60,000
Year two (2 x 10%) x (\$300,000 - \$60,000) = \$48,000
a. Year one, \$60,000.

b. Year two, \$48,000.

2. Units of production (activity) method (lifetime output is estimated at 110,000 units; the press produced 12,000 units in year one and 18,000 in year two):

Straight line depreciation per unit = (Total Cost - Salvage value)/Total units produced
= (\$300,000 - ...

#### Solution Summary

This solution is comprised of a detailed explanation to answer what is the annual depreciation for each of the first two full years under the following depreciation methods.

\$2.19