Asked by Alexia Salcedo on May 29, 2024
Verified
Dougan Company purchased equipment on January 1 2016 for $90000. It is estimated that the equipment will have a $5000 salvage value at the end of its 5-year useful life. It is also estimated that the equipment will produce 100000 units over its 5-year life.
Instructions
Answer the following independent questions.
1. Compute the amount of depreciation expense for the year ended December 31 2016 using the straight-line method of depreciation.
2. If 16000 units of product are produced in 2016 and 24000 units are produced in 2017 what is the book value of the equipment at December 31 2017? The company uses the units-of-activity depreciation method.
3. If the company uses the double-declining-balance method of depreciation what is the balance of the Accumulated Depreciation-Equipment account at December 31 2018?
Salvage Value
An asset’s projected terminal value after the end of its usefulness.
Straight-line Method
A method of depreciation that allocates an equal amount of the asset's cost to each year of its useful life.
Units-of-activity Method
A depreciation method that allocates an asset's cost based on its usage, activities, or units produced, rather than the passage of time.
- Understand and apply various depreciation methods including straight-line, units-of-activity, and double-declining-balance.
- Calculate depreciation expenses and book value for fixed assets.
Verified Answer
AB
annie bouquettMay 30, 2024
Final Answer :
1. Straight-line method: =C−S Years =($90,000−$5,000)5=$17,000= \frac { \mathrm { C } - \mathrm { S } } { \text { Years } } = \frac { ( \$ 90,000 - \$ 5,000 ) } { 5 } = \$ 17,000= Years C−S=5($90,000−$5,000)=$17,000 per year
2. Units-of-activity method: =C−S Units =($90,000−$5,000)100,000 units =$10.85= \frac { C - S } { \text { Units } } = \frac { ( \$ 90,000 - \$ 5,000 ) } { 100,000 \text { units } } = \$ 10.85= Units C−S=100,000 units ($90,000−$5,000)=$10.85 per unit
201616,000 units ×$.85=$13,600201724,000 units ×$.85=20,400 Accumulated depreciation =$34,000‾‾ Cost of asset $90,000 Less: Accumulated depreciation 34,000‾ Book value $56,000\begin{array} { l } 2016 \quad 16,000 \text { units } \times \$ .85 = \$ 13,600 \\2017 \quad 24,000 \text { units } \times \$ .85 = 20,400 \\\text { Accumulated depreciation } = \underline { \underline { \$ 34,000 } } \\\\\begin{array} { l } \text { Cost of asset }& \$ 90,000 \\\text { Less: Accumulated depreciation } & \underline { 34,000 } \\\text { Book value }&{ \$ 56,000 } \end{array} \\\end{array}201616,000 units ×$.85=$13,600201724,000 units ×$.85=20,400 Accumulated depreciation =$34,000 Cost of asset Less: Accumulated depreciation Book value $90,00034,000$56,000
3. Double-declining-balance method:
Book Value Beginning Declining Depreciation Accumulated of Year × Balance Rate = Expense Depreciation 2016$90,00040%$36,000$36,000201754,00040%21,60057,600201832,40040%12,96070,560\begin{array}{ccccc}&\text { Book Value }\\&\text { Beginning}&\text { Declining }&\text { Depreciation } &\text { Accumulated }\\&\text { of Year } \times& \text { Balance Rate }=&\text { Expense } & \text { Depreciation }\\\hline2016 & \$ 90,000 & 40 \% & \$ 36,000 & \$ 36,000 \\2017 & 54,000 & 40 \% & 21,600 & 57,600 \\2018 & 32,400 & 40 \% & 12,960 & 70,560\end{array}201620172018 Book Value Beginning of Year ×$90,00054,00032,400 Declining Balance Rate =40%40%40% Depreciation Expense $36,00021,60012,960 Accumulated Depreciation $36,00057,60070,560
2. Units-of-activity method: =C−S Units =($90,000−$5,000)100,000 units =$10.85= \frac { C - S } { \text { Units } } = \frac { ( \$ 90,000 - \$ 5,000 ) } { 100,000 \text { units } } = \$ 10.85= Units C−S=100,000 units ($90,000−$5,000)=$10.85 per unit
201616,000 units ×$.85=$13,600201724,000 units ×$.85=20,400 Accumulated depreciation =$34,000‾‾ Cost of asset $90,000 Less: Accumulated depreciation 34,000‾ Book value $56,000\begin{array} { l } 2016 \quad 16,000 \text { units } \times \$ .85 = \$ 13,600 \\2017 \quad 24,000 \text { units } \times \$ .85 = 20,400 \\\text { Accumulated depreciation } = \underline { \underline { \$ 34,000 } } \\\\\begin{array} { l } \text { Cost of asset }& \$ 90,000 \\\text { Less: Accumulated depreciation } & \underline { 34,000 } \\\text { Book value }&{ \$ 56,000 } \end{array} \\\end{array}201616,000 units ×$.85=$13,600201724,000 units ×$.85=20,400 Accumulated depreciation =$34,000 Cost of asset Less: Accumulated depreciation Book value $90,00034,000$56,000
3. Double-declining-balance method:
Book Value Beginning Declining Depreciation Accumulated of Year × Balance Rate = Expense Depreciation 2016$90,00040%$36,000$36,000201754,00040%21,60057,600201832,40040%12,96070,560\begin{array}{ccccc}&\text { Book Value }\\&\text { Beginning}&\text { Declining }&\text { Depreciation } &\text { Accumulated }\\&\text { of Year } \times& \text { Balance Rate }=&\text { Expense } & \text { Depreciation }\\\hline2016 & \$ 90,000 & 40 \% & \$ 36,000 & \$ 36,000 \\2017 & 54,000 & 40 \% & 21,600 & 57,600 \\2018 & 32,400 & 40 \% & 12,960 & 70,560\end{array}201620172018 Book Value Beginning of Year ×$90,00054,00032,400 Declining Balance Rate =40%40%40% Depreciation Expense $36,00021,60012,960 Accumulated Depreciation $36,00057,60070,560
Learning Objectives
- Understand and apply various depreciation methods including straight-line, units-of-activity, and double-declining-balance.
- Calculate depreciation expenses and book value for fixed assets.
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