Question

Please show all work thank you. There are 5 questions : Exhibit 1, Exhibit 2.1, 2.3, 2.3, and Exhibit 3

CSU Enterprises purchased new equipment for $350,000, terms f.о.b. shipping point. Other costs connected with the purchase were as follows: State sales tax Freight costs Insurance while in transit Insurance after equipment placed in service Installation costs Insurance for the first year of operations Testing $29,200 5,600 800 3,000 4,000 6,000 1,400 $50,000 Subtotal Your supervisor asks you to prepare a few excel exhibits to indicate Exhibit: What is the initial cost of the new equipment per accounting standards and the reason why? (16 points) Assuming that the equipment has a ten-year line span with estimated residual value of $30,000 at the end of the ten year. In addition, it is determinated with the external auditor that the start date of the depreciation is September 1, 2018. What is the depreciation schedule for each calendar year (2018 to 2028) based on Exhibit 2-1: Straight-line method (16 points) Exhibit 2-2: Sum-of-the-years'-digits method (16 points) Exhibit 2-3: Double-declining method (16 points) Because the new equipment is used to help widget production, one of the amortization methods is unit production method and total number of widget to be produced per calendar is estimated (with the same residual value of 30,000 at the end of the tenth year) as follows Estimated Number of 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 Widget Produced 5,000 (4 months) 60,000 70,000 80,000 80,000 85,000 82,000 81,000 79,000 75,000 40,000 (8 months) Exhibit 3: What is the depreciation schedule for each calendar using unit production method? (16 points)

Answer 1

1	Initial cost of new equipment
	Particulars	Amount ($)
	Purchase cost	350000
	State sales tax	29200
	Freight costs	5600
	Insurance while in transit	800
	Insurance after equipment is placed in service	0
	Installation costs	4000
	Insurance in first year of operation	0
	Testing	1400
		391000

Costs incurred once the asset is ready for its intended use cannot be capitalized (unless it results in revision of initially estimated future benefits). Hence, insurance expense after the asset is placed in service and first year of operations cannot be capitalized.

Depreciation schedule:
Straight - line method: Depreciation = (Original cost - Residual value) / Useful life = (391000 - 30000) / 10 = 36100
Year	Opening Balance	Depreciation for the year	Closing Balance	Remarks
2018	391000	12033	378967	(For four months - 36100*(4/12))
2019	378967	36100	342867
2020	342867	36100	306767
2021	306767	36100	270667
2022	270667	36100	234567
2023	234567	36100	198467
2024	198467	36100	162367
2025	162367	36100	126267
2026	126267	36100	90167
2027	90167	36100	54067
2028	54067	24067	30000	(For four months - 36100*(8/12))
Sum of years of digits method:
Year	Opening Balance	Depreciation for the year	Closing Balance	Depreciation Base	Remaining life of the asset	Depreciation fraction	Depreciation expense
2018	391000	71090.91	319909	391000	10	10/55	71090.91
2019	319909	63981.82	255927	391000	9	9/55	63981.82
2020	255927	56872.73	199055	391000	8	8/55	56872.73
2021	199055	49763.64	149291	391000	7	7/55	49763.64
2022	149291	42654.55	106636	391000	6	6/55	42654.55
2023	106636	35545.45	71091	391000	5	5/55	35545.45
2024	71091	28436.36	42655	391000	4	4/55	28436.36
2025	42655	21327.27	21327	391000	3	3/55	21327.27
2026	21327	14218.18	7109	391000	2	2/55	14218.18
2027	7109	7109.09	0	391000	1	1/55	7109.09
2028	0	0	0	391000	0	0	0.00
					55
Double - declining method: Depreciation under straight line = 10% (Useful life is 10 years) Depreciation under double declining method = 20% on opening balance
Year	Opening Balance	Depreciation percentage	Depreciation for the year	Closing Balance	Remarks
2018	391000	20%	26066.67	364933	For four months = 391000*20%*4/12
2019	364933	20%	72986.67	291947
2020	291947	20%	58389.33	233557
2021	233557	20%	46711.47	186846
2022	186846	20%	37369.17	149477
2023	149477	20%	29895.34	119581
2024	119581	20%	23916.27	95665
2025	95665	20%	19133.02	76532
2026	76532	20%	15306.41	61226
2027	61226	20%	12245.13	48981
2028	48981	20%	6530.80	42450	For 8 months = 48981*20%*8/12
Unit production method
Year	Opening Balance	Depreciation base	Number of units produced	Depreciation fraction	Depreciation for the year	Closing Balance
2018	391000	391000	5000	5000/737000	2653	388347
2019	388347	391000	60000	60000/737000	31832	356516
2020	356516	391000	70000	70000/737000	37137	319379
2021	319379	391000	80000	80000/737000	42442	276936
2022	276936	391000	80000	80000/737000	42442	234494
2023	234494	391000	85000	85000/737000	45095	189399
2024	189399	391000	82000	82000/737000	43503	145896
2025	145896	391000	81000	81000/737000	42973	102923
2026	102923	391000	79000	79000/737000	41912	61011
2027	61011	391000	75000	75000/737000	39790	21221
2028	21221	391000	40000	40000/737000	21221	0
			737000