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E109 Zhang Machine and Dye bought a machine on January 2, 2023, for $460,000. The machine was expected to remain in service for 3 years
E109 Zhang Machine and Dye bought a machine on January 2, 2023, for $460,000. The machine was expected to remain in service for 3 years and produce 2,000,000 parts. At the end of its useful life, company officials estimated that, due to technological changes, the machines residual value would only be $10,000. The machine produced 700,000 parts in the first year, 660,000 in the second year, and 650,000 in the third year.
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- Prepare a schedule of amortization expense per year for the machine using the straight-line, UOP, and DDB amortization methods. Assume that in all cases the machine is valued at $10,000 at the end of the third year, and the third-year amortization is adjusted (set as a plug) to ensure this happens.
- Which amortization method results in the highest net income in the second year? Does this higher net income mean the machine was used more efficiently under this method?
- Which method tracks the wear and tear on the machine most closely? Why?
- After 1 year under the DDB method, the company switched to the straight-line method. Prepare a schedule of amortization expense for this situation, showing all calculations.
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