Question

Problems (60 points) Answer three of the four questions if you work on all four, put an x through the one you don't want graded. Show your work to get partial credit 1. The Vaughan Company purchased a piece of equipment on 5/1/17 for $275,000 The equipment is expected to be in use for S years and to have a salvage value of $25,000. The equipment is expected to be used to produce 1,250,000 units 150,000 units were produced in 2017, 250,000 in 2018, 300,000 in 2019, 200,000 in 2020, 100,000 in 2021, and 250,000 in 2022. Required Using the double-declining method, calculate depreciation for each year the equipment is in service (it was used for five years as planned). a. Jsing the activity method based on units of production, calculate depreciation for each year the equipmen- in service. (it was used for five years as planned).

Answer 1

a)	Useful Life		5	years
	Rate of depreciation		(100% / 5 years) x 2
			=	40%

	Beginning		Accumulated	Ending
Year End	Book Value	Depreciation	Depreciation	Book Value
2017	$ 275,000.00	$ 110,000.00	$ 110,000.00	$ 165,000.00
2018	$ 165,000.00	$   66,000.00	$ 176,000.00	$   99,000.00
2019	$   99,000.00	$   39,600.00	$ 215,600.00	$   59,400.00
2020	$   59,400.00	$   23,760.00	$ 239,360.00	$   35,640.00
2021	$   35,640.00	$   10,640.00	$ 250,000.00	$   25,000.00

Depreciation for the end of 5th year =				$ 35640 - $ 25000
			=	$ 10,640.00
This has been done to make sure that the ending book value doesn't
fall below the salvage value.

b)	Depreciable base		($ 275000 - $ 25000)		$ 250,000.00
	Total no. of units to be produced				1000000
	Depreciation expense per unit				$             0.25

	Units	Dep. Exp	Depreciation
Year End	Produced	Per. Unit	Expense
2017	150000	$      0.25	$   37,500.00
2018	250000	$      0.25	$   62,500.00
2019	300000	$      0.25	$   75,000.00
2020	200000	$      0.25	$   50,000.00
2021	100000	$      0.25	$   25,000.00
	1000000		$ 250,000.00