Question

Required information [The following information applies to the questions displayed below.) On October 1, 2021, the Allegheny Corporation purchased equipment for $224,000. The estimated service life of the equipment is 10 years and the estimated residual value is $4,000. The equipment is expected to produce 400,000 units during its life. Required: Calculate depreciation for 2021 and 2022 using each of the following methods. Partial-year depreciation is calculated based on the number of months the asset is in service. 1. Straight line. Straight-Line Depreciation 1. Choose Denominator: Choose Numerator: = Annual Depreciation = Annual Depreciation Annual Depreciation Fraction of Year Depreciation expense Year 2021 2022

Answer 1

1) Straight-line:
Straight-Line Depreciation
	Choose Numerator	/	Choose Denominator	=	Annual Depreciation
	Depreciable Value	/	Number of Useful life in years	=	Annual Depreciation
	$220,000	/	10	=	$22,000
Year	Annual Depreciation	*	Fraction of Year	=	Depreciation Expense
2021	$22,000	*	3/12 months	=	$5,500
2022	$22,000	*	1	=	$22,000
	Depreciable value = $224,000 - $4,000 = $220,000
	Depreciation expense = $220,000/10 years
Depreciation expense under straight-line method is same in all the years.

2) Double-declining balance
	Depreciation for the Period				End of Period
Annual Period	Beginning of Period Book Value (a)	Depreciation Rate (%) (b)	Fraction of Year (c )	Depreciation Expense (d=a*b*c)	Accumulated Depreciation (d+d)	Book Value (a-d)
2021	$224,000	20%	3/12.	$11,200	$11,200	$212,800
2022	$212,800	20%	1	$42,560	$53,760	$170,240
Depreciation rate under double declining balance method = 1/10 years = 10%*2 = 20%

3)

Select formula for Units of Production Depreciation:
Depreciation cost per unit * units produced
Calculate 2021 depreciation expense:
Depreciation per unit rate (a)	$0.55
Units produced in 2021 (b)	20,000
Depreciation in 2021 (a*b)	$11,000
Calculate 2022 depreciation expense:
Depreciation per unit rate (a)	$0.55
Units produced in 2021 (b)	35,000
Depreciation in 2021 (a*b)	$19,250
Depreciation cost per unit = $224,000 - $4,000 = $220,000/400,000 units = $0.55 per unit.