Question

Crispy Fried Chicken bought equipment on January 22​, 2018, for $33,000. The equipment was expected to remain in service for four years and to operate for 6,750 hours. At the end of the​ equipment's useful​ life, Crispy estimates that its residual value will be $6,000. The equipment operated for 675 hours the first​ year, 2,025 hours the second​ year,2,700 hours the third​ year, and 1,350 hours the fourth year.

Requirement 1. Prepare a schedule of depreciation​ expense, accumulated​ depreciation, and book value per year for the equipment under the three depreciation​ methods: straight-line,​ units-of-production, and​ double-declining-balance. Show your computations. ​Note: Three depreciation schedules must be prepared.

Begin by preparing a depreciation schedule using the​ straight-line method.

Straight-Line Depreciation Schedule
		Depreciation for the Year
	Asset	Depreciable		Useful		Depreciation	Accumulated	Book
Date	Cost	Cost		Life		Expense	Depreciation	Value
1-2-2018
12-31-2018			/	4 years	=
12-31-2019			/	4 years	=
12-31-2020			/	4 years	=
12-31-2021			/	4 years	=		27,000	6,000

Answer 1

Ans:

Method 1: Straight Line Method:

The annual depreciation under straight line method is calculated as follows:

Annual Depreciation = (Cost - Salvage Value)/Estimated Life = (33,000 - 6,000)/4 = $6,750

Depreciation Rate=1/life of asset=1/4 years=0.25=25%

The schedule is given below:

Straight-Line Depreciation Schedule
		Depreciation for the Year
	Asset	Depreciable		Useful		Depreciation	Accumulated	Book
Date	Cost	Cost		Life		Expense	Depreciation	Value
02-Jan-2018	33000	0				0	0
31-Dec-2018	27,000	25%	/	4 years	=	6,750	6,750	26,250
31-Dec-2019	27,000	25%	/	4 years	=	6,750	13500	19,500
31-Dec-2020	27,000	25%	/	4 years	=	6,750	20250	12,750
31-Dec-2021	27,000	25%	/	4 years	=	6,750	27,000	6,000

Book Value=Actual Asset Cost- Accumulated Depreciation