Question

At the beginning of 2017, your company buys a $30,400 piece of equipment that it expects to use for 4 years. The equipment has an estimated residual value of 4,000. The company expects to produce a total of 200,000 units. Actual production is as follows: 50,000 units in 2017, 54,000 units in 2018, 47,000 units in 2019, and 49,000 units in 2020.


Required:

1. Determine the depreciable cost.
2. Calculate the depreciation expense per year under the straight-line method.
3. Use the straight-line method to prepare a depreciation schedule.
4. Calculate the depreciation rate per unit under the units-of-production method.
5. Use the units-of-production method to prepare a depreciation schedule.

Answer 1

Answer

· Working

A	Cost	$            30,400.00
B	Residual Value	$              4,000.00
C=A - B	Depreciable base	$            26,400.00
D	Life [in years]	4
E=C/D	Annual SLM depreciation	$              6,600.00

· [a] Depreciable cost = $ 26400

· [b] Depreciation expense per year under Straight line = $ 6600

· [c]

Year	Book Value	Depreciation expense	Ending Book Value	Accumulated Depreciation
2017	$              30,400.00	$              6,600.00	$         23,800.00	$                6,600.00
2018	$              23,800.00	$              6,600.00	$         17,200.00	$             13,200.00
2019	$              17,200.00	$              6,600.00	$         10,600.00	$             19,800.00
2020	$              10,600.00	$              6,600.00	$            4,000.00	$             26,400.00

· [d] Depreciation rate per unit = $ 26400 / 200000 units = $ 0.132

· [e]

Year	Book Value	Usage	Depreciation expense	Ending Book Value	Accumulated Depreciation
1	$              30,400.00	50,000	$            6,600.00	$             23,800.00	$           6,600.00
2	$              23,800.00	54,000	$            7,128.00	$             16,672.00	$        13,728.00
3	$              16,672.00	47,000	$            6,204.00	$             10,468.00	$        19,932.00
4	$              10,468.00	49,000	$            6,468.00	$                4,000.00	$        26,400.00