Equipment purchased at the beginning of the fiscal year for $60,000 is expected to have a...
Equipment purchased at the beginning of the fiscal year for $60,000 is expected to have a useful life of 5 years, or 1,000 operating hours, and a residual value of $10,000. Compute the depreciation for the first and second years of use by each of the following methods:
|
(a) |
straight-line Year 1 Year 2 |
|
(b) |
units-of-production (200 hours first year; 5000 hours second year) Year 1 Year 2 |
|
(c) |
declining-balance at twice the straight-line rate Year 1 Year 2 |
Homework Answers
Answer
- Requirement [a]
|
A |
Cost |
$ 60,000.00 |
|
B |
Residual Value |
$ 10,000.00 |
|
C=A - B |
Depreciable base |
$ 50,000.00 |
|
D |
Life [in years] |
5 |
|
E=C/D |
Annual SLM depreciation |
$ 10,000.00 |
Year 1 = $ 10,000
Year 2 = $ 10,000
- Requirement [b]
|
A |
Cost |
$ 60,000.00 |
|
B |
Residual Value |
$ 10,000.00 |
|
C=A - B |
Depreciable base |
$ 50,000.00 |
|
D |
Usage |
1,000 |
|
E = C/D |
Depreciation per hour |
$ 50.00 |
Year 1 = 200 hrs x $ 50 = $
10,000
Year 2 = 500 hours x $ 50 = $ 25,000
- Requirement [c]
|
A |
Cost |
$ 60,000.00 |
|
B |
Residual Value |
$ 10,000.00 |
|
C=A - B |
Depreciable base |
$ 50,000.00 |
|
D |
Life [in years] |
5 |
|
E=C/D |
Annual SLM depreciation |
$ 10,000.00 |
|
F=E/C |
SLM Rate |
20.00% |
|
G=F x 2 |
DDB Rate |
40.00% |
|
Year |
Beginning Book Value |
Depreciation rate |
Depreciation expense |
Ending Book Value |
|
1 |
$ 60,000.00 |
40.00% |
$ 24,000.00 |
$ 36,000.00 |
|
2 |
$ 36,000.00 |
40.00% |
$ 14,400.00 |
$ 21,600.00 |
Year 1 = $ 24,000
Year 2 = $ 14,400
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