Question

Question 13 Cullumber Company purchased equipment on March 27, 2018, at a cost of $328,000. Management is contemplating the merits of using the diminishing-balance or units-of-production method of depreciation instead of the straight-line method, which it currently uses for other equipment. The new equipment has an estimated residual value of $8,000 and an estimated useful life of either four years or 80,000 units. Demand for the products produced by the equipment is sporadic so the equipment will be used more in some years than in others. Assume the equipment produces the following number of units each year: 14,600 units in 2018; 20,400 units in 2019; 20,000 units in 2020; 20,000 units in 2021; and 5,000 units in 2022. Cullumber has a December year end.

(a) Prepare separate depreciation schedules for the life of the equipment using: (Round depreciation per unit to 2 decimal places, e.g. 5.28 and final answers to 0 decimal places, e.g. 5,275.) Straight-line method: Year Depreciable Amount Depreciation Expense Accumulated Depreciation Carrying Amount $ 2018 $ $ $ 2019 2020 2021 2022 Double-diminishing-balance method: Year Opening Carrying Amount Depreciation Expense Accumulated Depreciation Carrying Amount $ 2018 $ $ $ 2019 2020 2021 2022 Units-of-production method: Year Units-of-Production Depreciation Expense Accumulated Depreciation Carrying Amount $ 2018 $ $ 2019 2020 2021 2022

Answer 1

1) Straight line depreciation = (cost -salvage value)/life of assets
depreciation = (328000-8000)/4 = 80000
		depreciation exp	accumulated depreciation	book value
			0	328000
2018	80000*9/12	60000	60000	268000
2019		80000	140000	188000
2020		80000	220000	108000
2021		80000	300000	28000
2022	80000*3/12	20000	320000	8000
2) Double declining method
depreciation rate = (328000/4)/328000*2 = 50%
		depreciation exp	accumulated depreciation	book value
				328000
2018	328000*50%*9/12	123000	123000	205000
2019	205000*50%	102500	225500	102500
2020	102500*50%	51250	276750	51250
2021	51250*50%	25625	302375	25625
2022	25625*50%*3/12	3203	305578	22422
3) Unit of production method
depreciation = (cost-salvage value)/total machine hours
depreciation per machine hr = (328000-8000)/80000 = 4
		depreciation exp	accumulated depreciation	book value
2018				328000
2018	14600*4	58400	58400	269600
2019	20400*4	81600	140000	188000
2020	20000*4	80000	220000	108000
2021	20000*4	80000	300000	28000
2022	5000*4	20000	320000	8000