Question

At the beginning of 2017, your company buys a $29,600 piece of equipment that it expects to use for 4 years. The equipment has an estimated residual value of 4,000. The company expects to produce a total of 200,000 units. Actual production is as follows: 42,000 units in 2017, 50,000 units in 2018, 47,000 units in 2019, and 61,000 units in 2020.

Required:

1. Determine the depreciable cost.

2. Calculate the depreciation expense per year under the straight-line method.

3. Use the straight-line method to prepare a depreciation schedule.

4. Calculate the depreciation rate per unit under the units-of-production method.

5. Use the units-of-production method to prepare a depreciation schedule.

Answer 1

1.

Cost of equipment	$   29,600
Less: Residual value	$   (4,000)
Depreciable cost	$   25,600

2.

Depreciable cost	$   25,600
Life of the equipment	4 Years
Depreciation per year under straight line method ($25,600/4)	$     6,400

3.

Year	Beginning book value	Depreciation	Ending book value
2017	$                        29,600	$         6,400	$                  23,200
2018	$                        23,200	$         6,400	$                  16,800
2019	$                        16,800	$         6,400	$                  10,400
2020	$                        10,400	$         6,400	$                    4,000

4.

Depreciable cost	$   25,600
Estimated production units	200,000
Depreciation rate per unit under the units-of-production method ($25,600/200,000)	$     0.128

5.

Year	Beginning book value	Depreciation	Ending book value
2017	$                        29,600	42,000*$0.128 = $5,376	$                  24,224
2018	$                        24,224	50,000*$0.128 = $6,400	$                  17,824
2019	$                        17,824	47,000*$0.128 = $6,016	$                  11,808
2020	$                        11,808	61,000*$0.128 = $7,808	$                    4,000

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