Rottino Company purchased a new machine on October 1, 2020, at a cost of $150,000. The company estimated that the machine will have a salvage value of $12,000. The machine is expected to be used for 10,000 working hours during its 5-year life.

Compute the depreciation expense under the following methods for the year indicated.

(a) Straight-line for 2020.

(b) Units-of-activity for 2020, assuming machine usage was 1,700 hours.

(c) Declining - balance using double the straight-line rate for 2020 and 2021.

Instructions are listed below.

Explanation:

Giving the following information:

Purchasing cost = $150,000.

The company estimated that the machine will have a salvage value of $12,000. The machine is expected to be used for 10,000 working hours during its 5-year life.

1) Straight-line:

Annual depreciation = (original cost - salvage value) / estimated life (years)

Annual depreciation = (150,000 - 12,000) / 5 = 27,600

2020:

Annual depreciation = (27,600/365) * 92 days = $6,956.71

2) Units of activity:

Annual depreciation = [ (original cost - salvage value) / useful life of production in units]*units produced

Annual depreciation = [ (150,000 - 12,000) / 10,000]*1.700 = $23,460

3) Double-declining balance:

Annual depreciation = 2*[ (book value) / estimated life (years) ]

Annual depreciation = 2*27,600 = 55,200

2020:

Annual depreciation = 55,200/365*92 = 13,913.42

2021:

Annual depreciation = [138,000 - 13,913.42) / 5]*2 = 49,634.63