Question

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?

the laugh factory bought equipmnent on jan 2, 2018 for 15,000$. the equip was expected 2 remain in service for 4yrs & to operate for 3,000 hours. at the end of the euips useful life, the laugh factory estimates that itz residual value will be 3,000$ the equip operated for 300hrs yr1, 900hrs yr2, 1,200hrs yr3, and 600hrs yr4.

Answer 1

Solution: 1a

Below is the schedule of depreciation - Straigh line depreciation

Straight-Line Depreciation Schedule Depreciation for the Year Depreciable Useful Depreciation Accumulated Book Date Asset Cost Cost Life expense Depreciation Value 1/2/2018 $15,000 $15,000 12/31/2018 $12,000/ 4= $3,000 $3,000 $12,000 12/31/2019 $12,000/ 4= $3,000 $6,000 $9,000 12/31/2020 $12,000/ 41= $3,000 $9,000 $6,000 12/31/2021 $12,000 41= $3,000 $12,000 $3,000 Working Note: Depreciatiable Cost = Asset Cost - Residual Value = $15,000 - $3,000 = $12,000 Depreciation Expense = Depreciable Cost/Useful Life Accumulated Depreciation = Sum of Depreciation Till date Book Value = Asset Cost - Accumulated Depreciation

Solution: 1b

Below is the schedule of depreciation - Units of Production

Cost ($15,000 Residual Value) / useful Life in Units - Depreciation per unit $3,000) / 3,000 = $4

per Unit Units of Production Depreciation Schedule Depreciation for the Year Date Asset Cost Depreciation Number Depreciation Accumulated Book of Units expense Depreciation Value 1/2/2018 $15,000 $15,000 12/31/2018 $4 х 300] = $1,200 $1,200 $13,800 12/31/2019 $4x 900 = $3,600 $4,800 $10,200 12/31/2020 $4x 1200 $4,800 $9,600 $5,400 12/31/2021 $4x 600] = $2,400 $12,000 $3,000 = Working Note: Depreciation Expense = Depreciation Per unit * Number of Units Accumulated Depreciation = Sum of Depreciation Till date Book Value = Asset Cost - Accumulated Depreciation

Solution: 1c

Below is the schedule of depreciation - double declining balance.

Double-Declining-Balance Depreciation Schedule Depreciation for the Year Date Asset Cost Depreciation Accumulated Book Book Value DDB Rate expense Depreciation Value 1/2/2018 $15,000 $15,000 12/31/2018 $15,000 x 50%) = $7,500 $7,500 $7,500 12/31/2019 $7,500 x 50%) = $3,750 $11,250 $3,750 12/31/2020 $3,750 x $750 $12,000 $3,000 12/31/2021 Working Note: Double Declining Balance rate = (100% / Life of asset) * 2 = (100% / 4) * 2 = 50% Depreciation Expense = Book Value * Double Declining Balance rate Depreciation Expense for 3rd year = Book Value - Residual Value = $3,750 - $3,000 = $750 Accumulated Depreciation = Sum of Depreciation Till date Book Value = Asset Cost - Accumulated Depreciation

Solution: 2

"Units of the Production method" tracks the wear and tear of the equipment most closely.

Units of the product method charges depreciation on the basis of its actual usage year to year.