Question

Sushi Corp. purchased and installed electronic payment equipment at its drive-in restaurants in San Marcos, TX, at a cost of $40,500. The equipment has an estimated residual value of $2,100. The equipment is expected to process 265,000 payments over its three year useful life. Per year, expected payment transactions are 63,600, year 1: 145,750 year 2 and 55,650, year 3 Required: Complete a depreciation schedule for each of the alternative methods. 1. Straight-line. 2. Units-of-production 3. Double-declining balance

Answer 1

1. Straight Line Method Year Income Statement Depreciation Expense Cost Balance Sheet Accumulated Depreciation Book Value At Acquisition $12,800 $12,800 $12,800 $40,500 $40,500 $40,500 $12,800 $25,600 $38,400 $27,700 $14,900 $2,100 Straight Line method Depreciation = (Cost of the Assets - Expected Residual Value)/No. of useful life =(40,500-2100)/3 = $ 12800 2. Units of Production Year Income Statement Depreciation Expense Cost Balance Sheet Accumulated Depreciation Book Value At Acquisition $9,216 $21,120 $8,064 $40,500 $40,500 $40,500 $9,216 $30,336 $38,400 $31,284 $10,164 $2,100 Unit of Production Depreciation ={(Cost of the Assets - Expected Residual Value)/Estimated total unit to be produced over expected useful life} X Actual Unit Produced Depreciation for ={(40,500-2100)/265000} x 63600 1st year = $ 9,216 Depreciation for 2nd year = {(40,500-2100)/265000} x 145750 = $ 21,120 Depreciation for 3rd year ={(40,500-2100)/265000} x 55,650 = $ 8,064 3. Double Declining Balance Year Income Statement Depreciation Expense Cost Balance Sheet Accumulated Depreciation Book Value At Acquisition $26,997 $9,000 $2,403 $40,500 $40,500 $40,500 $26,997 $35,997 $38,400 $13,503 $4,503 $2,100 Under double declining method, the depreciation rate is twice the straight line depreciation rate and depreciation ia applicable on WDV value of the assets Rate of Depreciation = = (100%/3 Years) x 2 =33.33%*2 =66.66% Depreciation amount for 1st year = =(Book Value or WDV-Scrap Value)X Depreciation rate 26997.3 =$ 40,500X66.66% =$ 26997.3 13502.7 9000.89982 4501.80018 3001.35018 Depreciation amount for 2nd year = =WDVX Depreciation rate =(40500-26997.3)*X66.66% = $ 9000 Depreciation amount for 3rd year = =Lower of: a) WDV X Depreciation rate OR b) Cost-Salavage Value-Accumulated Depreciation =Lower of: a) {40500-26997.3+9000)}*X66.66% OR b) 40,500-2100-26997.3-9000 =Lower of: a) $3,000 OR b) $ 2403 = $2,403