Question

Crane Company purchased equipment on March 27, 2018, at a cost of $228,000. Management is contemplating the merits of using the diminishing-balance or units-of-production method of depreciation instead of the straight-line method, which it currently uses for other equipment. The new equipment has an estimated residual value of $4,000 and an estimated useful life of either four years or 80,000 units. Demand for the products produced by the equipment is sporadic so the equipment will be used more in some years than in others. Assume the equipment produces the following number of units each year: 14,200 units in 2018; 20,200 units in 2019; 20,600 units in 2020; 20,000 units in 2021; and 5,000 units in 2022. Crane has a December year end.

(a) Prepare separate depreciation schedules for the life of the equipment using: (Round depreciation per unit to 2 decimal places, e.g. 5.28 and final answers to 0 decimal places, e.g. 5,275.)

Straight-line method:

Year	Depreciable Amount	Depreciation Expense	Accumulated Depreciation	Carrying Amount
				$
2018	$	$	$
2019
2020
2021
2022

Double-diminishing-balance method:

Year	Opening Carrying Amount	Depreciation Expense	Accumulated Depreciation	Carrying Amount
				$
2018	$	$	$
2019
2020
2021
2022

Units-of-production method:

Year	Units-of-Production	Depreciation Expense	Accumulated Depreciation	Carrying Amount
				$
2018		$	$
2019
2020
2021
2022

Answer 1

a)

Straight-line Method:

Depreciation Expense = (Cost of the Equipment - Salvage Value) / Number of Years of Useful Life

= ($228,000 - $4,000) / 4 Years

= $224,000 / 4 Years

= $56,000

Therefore, depreciation expense under straight-line method is $56,000.

*** Depreciable amount is $224,000.

Years	Depreciable Amount (a)	Depreciation Expense (b)	Accumulated Depreciation (b + b)	Carrying Amount
				$228,000
2018	$224,000	$56,000	$56,000	$172,000
2019	$224,000	$56,000	$112,000	$116,000
2020	$224,000	$56,000	$168,000	$60,000
2021	$224,000	$56,000	$224,000	$4,000
2022	$0

2)

Double-Declining Balance Method:

2018:

Depreciation Expense = Cost of the Equipment * (100% / Number of Years of Useful Life) * 2

= $228,000 * (100% / 4 Years) * 2

= $228,000 * 25% * 2

= $114,000

2019:

Depreciation Expense = $228,000 - $114,000 * 25% * 2

= $114,000 * 25% * 2

= $57,000

2020:

Depreciation Expense = $228,000 - $114,000 - $57,000 * 25% * 2

= $28,500

2021:

Depreciation Expense = $228,000 - $114,000 - $57,000 - $28,500 * 25% * 2

= $14,250

2022:

Depreciation Expense = $228,000 - $114,000 - $57,000 - $28,500 - $14,250 * 25% * 2

= $7,125

Years	Opening Carrying Amount	Depreciation Expense (b)	Accumulated Depreciation (b + b)	Carrying Amount
				$228,000
2018	$228,000	$114,000	$114,000	$114,000
2019	$114,000	$57,000	$171,000	$57,000
2020	$57,000	$28,500	$199,500	$28,500
2021	$28,500	$14,250	$213,750	$14,250
2022	$14,250	$7,125	$220,875	$7,125

3)

Units-of-production method:

2018:

Depreciation expense = (Cost of the equipment - Salvage value) / Number of total estimated units * Units produced in 2018

= ($228,000 - $4,000) / 80,000 units * 14,200 units

= $224,000 / 80,000 units * 14,200 units

= $39,760

2019:

Depreciation expense = $224,000/80,000 * 20,200 units

= $56,560

2020:

Depreciation expense = $224,000/80,000 * 20,600 units

= $57,680

2021:

Depreciation expense = $224,000/80,000 * 20,000 units

= $56,000

2022:

Depreciation expense = $224,000/80,000 * 5,000 units

= $14,000

Years	Units - Production	Depreciation Expense (b)	Accumulated Depreciation (b + b)	Carrying Amount
				$228,000
2018	14,200	$39,760	$39,760	$188,240
2019	20,200	$56,560	$96,320	$131,680
2020	20,600	$57,680	$154,000	$189,360
2021	20,000	$56,000	$210,000	$133,360
2022	5,000	$14,000	$224,000	$119,360