Question

Sangria Boat Lifts purchased equipment on January 1, 2017 for $96,000. It is estimated that the equipment will have a $5,000 residual value at the end of its 8-year useful life. It is also estimated that the equipment will produce 100,000 units over its 8-year life. Instructions: Answer the following independent questions. a) Calculate the amount of depreciation expense for the year ended December 31, 2017, using the straight-line method of depreciation. b) If 16,000 units of product are produced in 2017 and 36,000 units are produced in 2018, what is the carrying amount of the equipment at December 31, 2018 using the units-of-production depreciation method? c) If the company uses the double diminishing-balance method of depreciation, what will be the balance of the Accumulated Depreciation—Equipment account at December 31, 2019?

Answer 1

Solution :

(a)	Depreciation expenses for Year 2017 as per Straight Line Method	$ 18,200.
(b)	carrying amount of the equipment at December 31, 2018 using the units-of-production	$ 48,680
(c)	Accumulated Depreciation—Equipment account as per Double Decline Method	$ 55,500

Working :

(a) Depreciation as per Straight Line Method = (Original Cost - Salvage Value) / Useful Life

= ($ 96,000 - $ 5,000) / 8

= $ 18,200.

Depreciation expenses for Year 2017 = $ 18,200.

(b)

Depreciation expenes as per Units of Production Method = Units Produced * Depreciation Expenses per Unit

Depreciation Expenses per Unit =  (Original Cost - Salvage Value) / Total Production  

= ($ 96,000 - $ 5,000) / 100,000

= $ 0.91 per Unit

Total Depreciation Charged till 2018 = (16,000 + 36,000) * $ 0.91

= 52,000 * $ 0.91

= $ 47,320

Carrying Value = Original Cost - Accumulated Depreciation  

= $ 96,000 - $ 47,320

= $ 48,680.

(c) Double Decline Method :

Rate of Depreciation as per Double Decline Method = (100% / Useful Life) * 2

= (100% / 8 Years) * 2

= 25%

	2017	2018	2019
(a) Opening Balance	$ 96,000	$ 72,000	$ 54,000
(b) Depreciation (a * 25%)	$ 24,000	$ 18,000	$ 13,500
(c) Closing Value (a - b)	$ 72,000	$ 54,000	$ 40,500

Balance of Accumulated Depreciation at Dec. 31, 2019 = $ 24,000 + $ 18,000 + $ 13,500

= $ 55,500   

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