Question

On January 2, 2018, Tucker Enterprises, Inc., paid $204,500 for equipment used in manufacturing automotive supplies. In addition to the basic purchase price, the company paid $900 for transportation charges, $800 for insurance for the equipment while in transit, $11,600 sales tax, and $2,200 for a special platform on which to place the equipment in the plant. Management of Tucker Enterprises, Inc., estimates that the equipment will remain in service for five years and have a residual value of $20,000. The equipment will produce 60,000 units the first year, with annual production decreasing by 10,000 units during each of the next four years (i.e., 50,000 units in year 2; 40,000 units in year 3; and so on, for a total of 200,000 units). In trying to decide which depreciation method to use, Tucker Enterprises, Inc., requested a depreciation schedule for each of the three depreciation methods (straight-line, units of production, and double-declining balance).

Answer 1

	Cost of the asset:
				$
	Purchase price			204500
	Transportation charges			900
	Insurance			800
	Sales tax			11600
	Special platform			2200
	Total			220000
1	Depreciation rate=One year/Useful life=1/2=0.20=20%
	Straight-line depreciation schedule
	Date	Asset cost	Depreciation rate	Depreciable cost	Depreciation expense	Accumulated depreciation	Asset book value
	January 2,2018	220000					220000
	December 31,2018		20%	200000	40000	40000	180000
	December 31,2019		20%	200000	40000	80000	140000
	December 31,2020		20%	200000	40000	120000	100000
	December 31,2021		20%	200000	40000	160000	60000
	December 31,2022		20%	200000	40000	200000	20000
	Depreciable cost=Cost of the asset-Residual value=220000-20000=$ 200000
	Depreciation expense=Depreciable cost*Depreciation rate
	Asset book value=Cost-Accumulated depreciation
	Accumulated depreciation=Depreciation expense till date
	Depreciation expense per unit=Depreciable cost/Total unit output=200000/200000=$1
	Units of production depreciation schedule:
	Date	Asset cost	Depreciation per unit	Number of units	Depreciation expense	Accumulated depreciation	Asset book value
	January 2,2018	220000					220000
	December 31,2018		1	60000	60000	60000	160000
	December 31,2019		1	50000	50000	110000	110000
	December 31,2020		1	40000	40000	150000	70000
	December 31,2021		1	30000	30000	180000	40000
	December 31,2022		1	20000	20000	200000	20000
	Depreciation expense=Depreciable per unit*Depreciation rate
	DDB rate=SL depreciation rate*DDB rate multiplier=20%*2=40%
	Date	Asset cost	DDB rate	Asset book value	Depreciation expense	Accumulated depreciation	Asset book value
	January 2,2018	220000					220000
	December 31,2018		40%	220000	88000	88000	132000
	December 31,2019		40%	132000	52800	140800	79200
	December 31,2020		40%	79200	31680	172480	47520
	December 31,2021		40%	47520	19008	191488	28512
	December 31,2022		40%	28512	11405	202893	17107
	Depreciation expense=Asset book value*Depreciation rate
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