Question

Delicious Fried Chicken bought equipment on January 2, 2018, for $27,000. The equipment was expected to remain in service for four years and to operate for 4,200 hours. At the end of the equipment's useful life, Delicious estimates that its residual value will be $6,000. The equipment operated for 420 hours the first year, 1,260 hours the second year, 1,680 hours the third year, and 840 hours the fourth year. Read the requirements. Requirement 1. Prepare a schedule of depreciation expense, accumulated depreciation, and book value per year for the equipment under the three depreciation methods: straight-line, units-of-production, and double-declining-balance. Show your computations. Note: Three depreciation schedules must be prepared. Begin by preparing a depreciation schedule using the straight-line method. Requirements Straight-Line Depreciation Schedule Depreciation for the Year Asset Depreciable Useful Depreciation Accumulated Date Cost Life Expense Depreciation 1-2-2018 12-31-2018 Book Value Cost 1. Prepare a schedule of depreciation expense, accumulated depreciation, and book value per year for the equipment under the three depreciation methods: straight-line, units-of-production, and double-declining-balance. Show your computations. Note: Three depreciation schedules must be prepared. 2. Which method tracks the wear and tear on the equipment most closely? 12-31-2019 12-31-2020 12-31-2021 Print Done Choose from any list or enter any number in the input fields and then click Check Answer. 1 parts 4 remaining Clear All Check Answer

Answer 1

Method 1: Straight Line Method:

The annual depreciation under straight line method is calculated as follows:

Annual Depreciation = (Cost - Salvage Value)/Estimated Life = ($27,000 - 6000)/4 years = $5,250

		Depreciation for the year
Year	Asset Cost	Depreciable Cost	Useful Life	Depreciation Expense	Accumulated Depreciation	Book Value (Asset Cost – Accumulated Depreciation)
1-Feb-18	$27,000.00			$              -	$               -	$ 27,000.00
31-Dec-18	$27,000.00	$ 21,000.00	/4	$   5,250.00	$    5,250.00	$ 21,750.00
31-Dec-19	$27,000.00	$ 21,000.00	/4	$   5,250.00	$ 10,500.00	$ 16,500.00
31-Dec-20	$27,000.00	$ 21,000.00	/4	$   5,250.00	$ 15,750.00	$ 11,250.00
31-Dec-21	$27,000.00	$ 21,000.00	/4	$   5,250.00	$ 21,000.00	$    6,000.00

Method 2: Units of Production Method

The depreciation rate per unit is calculated as follows:

Depreciation Rate per hour = (Cost - Salvage Value)/Total Estimated hours = (27,000 - 6,000)/4200 hours = $5 per hour

The schedule is given below:

		Depreciation for the year
Year	Asset Cost	Depreciation per hour	No. of hours	Depreciation Expense	Accumulated Depreciation	Book Value (Asset Cost – Accumulated Depreciation)
1-Feb-18	27,000			$              -	$               -	$ 27,000.00
31-Dec-18	27,000	$5	420	$   2,100.00	$    2,100.00	$ 24,900.00
31-Dec-19	27,000	$5	1260	$   6,300.00	$    8,400.00	$ 18,600.00
31-Dec-20	27,000	$5	1680	$   8,400.00	$ 16,800.00	$ 10,200.00
31-Dec-21	27,000	$5	840	$   4,200.00	$ 21,000.00	$    6,000.00

Method 3: Double Declining Method

Depreciation Rate under Double Declining Method = 1/Estimated Life*2 = 1/4*2 = 50%

		Depreciation for the year
Year	Asset Cost	Depreciable Cost	Depreciation Rate	Depreciation Expense	Accumulated Depreciation	Book Value (Asset Cost – Accumulated Depreciation)
1-Feb-18	27,000			$              -	$               -	$ 27,000.00
31-Dec-18	27,000	$ 27,000.00	50%	$ 13,500.00	$ 13,500.00	$ 13,500.00
31-Dec-19	27,000	$ 13,500.00	50%	$   6,750.00	$ 20,250.00	$    6,750.00
31-Dec-20	27,000	$   6,750.00	50%	$   3,375.00	$ 23,625.00	$    3,375.00
31-Dec-21	27,000	$   3,375.00	50%	$   1,687.50	$ 25,312.50	$    1,687.50

2. Units of Production method tracks the wear and tear on the equipment more closely