Iron Works, Inc. purchased a metal casting machine on January 1, 2014. The cost of the machine was $32,000. Its estimated residual value was $7,000 at the end of an estimated 10-year life. The company expects to produce a total of 20,000 units. a. Calculate depreciation expense for 2014 and 2015 using the straight-line method. b. Calculate depreciation expense for 2014 and 2015 using the double-declining balance method. c. Calculate the depreciation expense for 2014 and 2015 using the units-of-production method. The company produced 1,200 units in 2014 and 1,650 units in 2015. (Round your final answer to nearest dollar value.)

a. Depreciation expenses in 2014 and 2015 using straight-line method is the same for each year at $2,500

b. Depreciation expenses using double-declining balance method:

+ 2014: $6,400

+ 2015: $5,120

c. Depreciation expenses using units-of-production method:

+ 2014: $1,500

+ 2015: $2,062.5

Explanation:

a. Using straight-line method, the depreciation expenses will be the same for the 10 useful life of the asset which is calculated as: (Historical asset cost - estimated residual value) / useful life = (32,000 - 7,000) / 10 = $2,500

b. Using declining balance method:

Depreciation in a year = 2 * Depreciation rate x Asset carrying value = 2 * (1/useful life) x Asset carrying value.

So, depreciation in 2014 = 2 x 1/10 x 32,000 = $6,400

depreciation in 2015 = 2 x 1/10 x (32,000-6,400) = $5,120

c. Using the units-of-production method:

Depreciation expenses for a year will be equal [ (Historical cost - estimated residual value) / Expected production capacity] x Production level during a year

So, depreciation in 2014 = (32,000-7,000) / 20,000 x 1,200 = $1,500

depreciation in 2015 = (32,000-7,000) / 20,000 x 1,650 = $2,062.5