ACC 205 Week 3 Exercise 7 Depreciation computations Change in estimate

7. Depreciation computations: change in estimate.Aussie Imports purchased a specialized piece of

machinery for $50,000 on January 1, 20X3. At the time of acquisition, the machine was estimated to have

a service life of 5 years (25,000 operating hours) and a residual value of $5,000. During the 5 years of

operations (20X3 – 20X7), the machine was used for 5,100, 4,800, 3,200, 6,000, and 5,900 hours,

respectively.

Instructions

a. Compute depreciation for 20X3 – 20X7 by using the following methods: straight line, units of output,

and double-declining-balance.

b. On January 1, 20X5, management shortened the remaining service life of the machine to 15 months.

Assuming use of the straight-line method, compute the company’s depreciation expense for 20X5.

c. Briefly describe what you would have done differently in part (a) if Aussie Imports had paid $47,800

for the machinery rather than $50,000 In addition, assume that the company incurred $800 of freight

charges $1,400 for machine setup and testing, and $300 for insurance during the first year of use.