Question

gament Open Assignment TER VERSION BACK NERY Problem 9-3A Payne Company purchased equipment on account on September 3, 2019, at an invoice price of $210,000. On September 4, 2019, paid $4,400 for delivery of the equipment. A one-year, 51,975 insurance policy on the equipment was purchased on September 6, 2019. On September 20, 2019, Payne paid $5,600 for Installation and testing of the equipment. The equipment was ready for use on October 1, 2019 Payne estimates that the equipment's useful life will be four years, with a residual value of $15,000. It also estimates that, in terms of activity, the equipments will be $2,000 units. Payne has a September O year end. Assume that actual usage as follow cal of Units Year Ended September 30 16,750 22,200 Determine the cost of the equipment. Cost of equipments 220000 Prepare depreciation schedules for the life of the asset under the following depreciation methods 1. straight-line 2. double diminishing balance 3. units-of-production L o rementi Policy | 2009-2019 Wie soes Inc. All Rights Reserved. A Division of John Wiley & Sons

Answer 1

Any expense related to the purchase & Installation of asset has to be capitalized. But Insurance being meant only for an year, it will not be capitalized.

Thus total cost of equipment = $ 210,000 + Delivery charge of $ 4,400 + Installation & Testing cost of $ 5,600 = $ 220,000

Here's the Depreciation schedule as per Straight Line Method:

Straight Line Depreciation
	Book Value	220,000	A
	Salvage Value	15,000	B
	Expected Life	4 years	C
Year	Depreciation Expense	Depreciation %	Accumulated Depreciation	Carrying value of asset at the end of year
	(A-B)*D	D=100%/C	Year on year Cumulative value of deprecation expense	Carrying value as at previous year end minus depreciation expense of current year
Year 1				220,000
Year 1	51,250	25%	51,250	168,750
Year 2	51,250	25%	102,500	117,500
Year 3	51,250	25%	153,750	66,250
Year 4	51,250	25%	205,000	15,000

Depreciation Schedule as per Double-Diminishing balance method:

Double-Diminishing method of Depreciation
	Book Value	220,000	A
	Salvage Value	15,000	B
	Expected Life	4 years	C
Year	Depreciation Expense	Depreciation %	Accumulated Depreciation	Carrying value of asset at the end of year
	Carrying value of previous year * F till Carrying value = salvage value (Usually the last year depreciation expense = carrying value of previous year minus salvage value)	D=(100%/C)*2	Year on year Cumulative value of deprecation expense	Carrying value as at previous year end minus depreciation expense of current year
Year 1				220,000
Year 1	110,000	50%	110,000	110,000
Year 2	55,000	50%	165,000	55,000
Year 3	27,500	50%	192,500	27,500
Year 4	12,500	50%	205,000	15,000

Please find below Depreciation Schedule as per Unit of production method:

Unit of Production Depreciation
	Book Value	220,000	A
	Salvage Value	15,000	B
	Expected units (in miles)	82,000	C
Year	Estimated number of units per year	Depreciation Expense (rounded off to 0 decimal places)	Accumulated Depreciation	Carrying value of asset at the end of year
	D (as given)	((A-B)/C)*D	Year on year Cumulative value of deprecation expense	Carrying value as at previous year end minus depreciation expense of current year
Year 1				220,000
Year 1	16,750	41,875.00	41,875.00	178,125.00
Year 2	27,600	69,000.00	110,875.00	109,125.00
Year 3	22,200	55,500.00	166,375.00	53,625.00
Year 4	15,450	38,625.00	205,000.00	15,000.00