Question

HW9#14: Free Response Question January 1, 2018, BTL purchased a new diesel power generator for $60,000, salvage value $5,000, useful life of 5 years, and productive capacity of 120,000 hours (actual usage in 2018 was 12,000 hours). BTL is questioning the effect of the depreciation expense for the new equipment on the Income Statement. Revenues are $110,000, salaries and wages expenses $26,000, and administrative expenses $20,000. The income tax rate is 30% INSTRUCTIONS: The manager requests you to calculate the depreciation expense at December 31, 2018 using the Straight- Line, Double Declining Balance, and Units-of Activity Methods (round to 2 decimal places) and advise what net income will be for each method? Use worksheet on following slide. HW9#14: Free Response Question - Worksheet Depreciation Straight-Line Double-Declining Methods Balance Revenues $110,000 $110,000 Units of Activity $110,000 Operating Expenses Total Operating Expenses Income from Operations Income Tax Expense Net Income

Answer 1

Answer with working is given below

Double Straight- Units of Declining Line Activity Balance $110,000 $110,000 $110,000 Revenues Less: Salaries and Wages Administrative expenses $26,000 $20,000 $5,500 $51,500 $26,000 $26,000 $20,000 $20,000 Depreciation Total Operating Expense Income from Operations $11,000 $24,000 $70,000 $40,000 $12,000 $28,000 $57,000 $58,500 $17,550 $40,950 $53,000 Income Tax expenses at 30% Net Income $15,900 $37,100 Working notes Depreciation Expense Calculation Double Units of Straight- Declining Year Activity Line Balance $11,000 $5,500 $24,000 Year 1 Calculations Straight Line method Residual Yearly Cost Years Depreciation value $11,000 $60,000 $5,000 5 Double declining balance method Yearly Opening X Balance Rate Year Depreciation $60,000 $24,000 40.00% Year 1 Number of years Depreciation DDB Depreciation rate 20% 40% Units of Activity Method Residual Total Cost Rate value hours $60,000 $5,000 $0.46 120,000 Yearly Depreciation hours Year Rate х Year 1 $0.46 $5,500 12,000