Question

Latte On Demand purchased a coffee drink machine on January 1, 2011, for $44,000. Expected useful life is 10 years or 100,000 drinks. In 2011, 3,000 drinks were sold and in 2012, 14,000 drinks were sold. Residual value is $4,000. Under three depreciation methods, annual depreciation and total accumulated depreciation at the end of 2011 and 2012 are as follows: Methodc Annual Depreciation Year 2011 2012 Method Annual Depreciation Accumulated Expense Depreciation $1,200 $1,200 5.600 6,800 Method B Annual Depreciation Accumulated Expense Depreciation $8.800 $ 8,800 7,040 15,840 Accumulated Depreciation $4,000 8,000 $4,000 4,000 Requirements 1. Identify the depreciation method used in each instance, and show the equation and computation for each method. (Round to the nearest dollar.) 2. Assume use of the same method through 2013. Compute depreciation expense, accumulated depreciation, and net book value for 2011-2013 under each method, assuming 12,000 drinks were sold in 2013.

Answer 1

Answer with working is given below

1. Method A Sum of Output Method Depreciation Output Depreciation per output 2011 $1,200 3,000 0.40 2012 $5,600 14,000 0.40 Drinks Sold Depreciation $4,800 Depreciation for year 2013 Method B Double declining balance method -20% Year 2011 2012 2013 Book value Depreciation $44,000 $8,800 $35,200 $7,040 $28,160 $5,632 Method C Straight line Depreciation method Book Value Residual value Total Depreciable asset value Number of years Depreciation per year $44,000 $4,000 $40,000 10 $4,000 Depreciation for Year 2013 $4,000 2. Method A- Sum of Output Method Annual Accumulated Net Book Year Depreciation Depreciation Value Expense 2011 $1,200 $1,200 $42,800 2012 $5,600 $6,800 $37,200 2013 $4,800 $11,600 $32,400 Method B - Double Declining method -20% Annual Accumulated Net Book Depreciation Year Expense 19 Depreciation Value 2011 $8,800 $8,800 $35,200 2012 $7,040 $15,840 $28,160 2013 $5,632 $21,472 $22,528 Method C- Straight line method Annual Accumulated Net Book Year Depreciation Depreciation Value Expense 2011 $4,000 $4,000 $40,000 2012 $4,000 $8,000 $36,000 2013 $4,000 $12,000 $32,000