Question

Carla Vista Co. purchased equipment on March 27,2018, at a cost of $248,000. Management is contemplating the merits of using the diminishing- balance or units-of-production method of depreciation instead of the straight-line method, which it currently uses for other equipment. The new equipment has an estimated residual value of $8,0o0 and an estimated useful life of either four years or 80,000 units. Demand for the products produced by the equipment is sporadic so the equipment will be used more in some years than in others. Assume the equipment produces the following number of units each year: 14,800 units in 2018: 20,000 units in 2019; 20,200 units in 2020;: 20,000 units in 2021; and 5,000 units in 2022.Carla Vista has a December year end. Part 1 Your answer is partially correct Prepare separate depreciation schedules for the life of the equipment using: (Round depreciation per unit to 2 decimal places, e.g. 5.28 and final answers to 0 decimal places, e.8. 5,275.) Straight-line method: Depreciation Expense Carrying Accumulated Depreclable Depreciation Amount Cost Year 248000 45534 202466 45534 2018 240000 $ 142466 105534 60000 240000 2019 82466 165534 60000 240000 2020 22466 225534 60000 240000 2021 8000 40000 14466 240000 2022 Double-diminishing-balance method: Opening Carrying Amount Depreciation Accumulated Carrying Amount Year Expense Depreciation 248000 2018 248000 $ 94104 94104 $ 153896 2019 153896 76948 171052 76948 2020 76948 38474 209526 38474 2021 38474 19237 228763 19237 2022 19237 2319 231082 16918 Units-of-production method Accumulated Carrying Depreciation Expense Depreciation Amount Units-of-Production Year 248000 202120 45880 45880 14800 2018 140120 107880 62000 20000 2019 77500 170500 62620 20000 2020 15500 232500 62000 20000 2021 248000 15500 5000 2022 Part 2 Your answer is partially correct Compare the total depreciation expense and accumulated depreciation under each of the three methods over the life of the equipment. (Round answers to O decimal places, e.g. 5,275.) Straight-Line Units-of-Production Double-Diminishing-Balance Total depreciation expense 240000 231082 284000 231082 284000 Accumulated depreciation 240000

Answer 1

Straight line Method
A	Cost	$ 248,000
B	Residual Value	$ 8,000
C=A - B	Depreciable base	$ 240,000
D	Life [in years left ]	4
E=C/D	Annual SLM depreciation	$ 60,000

Depreciation schedule-Straight line method
Year	Depreciable value	Depreciation expense	Accumulated Depreciation	Carrying value
2018	$ 248,000	$ 45,000	$ 45,000*	$ 203,000
2019	$ 248,000	$ 60,000	$ 105,000	$ 143,000
2020	$ 248,000	$ 60,000	$ 165,000	$ 83,000
2021	$ 248,000	$ 60,000	$ 225,000	$ 23,000
2022	$ 248,000	$ 15,000	$ 240,000	$ 8,000

*Depreciation for 9 months.

Double declining Method
A	Cost	$ 248,000
B	Residual Value	$ 8,000
C=A - B	Depreciable base	$ 240,000
D	Life [in years]	4
E=C/D	Annual SLM depreciation	$ 60,000
F=E/C	SLM Rate	25.00%
G=F x 2	DDB Rate	50.00%

Depreciation schedule-Double declining
Year	Opening Book Value		Depreciation expense	Accumulated Depreciation	Carrying value
2018	$ 248,000		$ 93,000	$ 93,000	$ 155,000
2019	$ 155,000		$ 77,500	$ 170,500	$ 77,500
2020	$ 77,500		$ 38,750	$ 209,250	$ 38,750
2021	$ 38,750		$ 19,375	$ 228,625	$ 19,375
2022	$ 19,375		$ 11,375	$ 240,000	$ 8,000

Units of Production method
A	Cost	$     2,48,000.00
B	Residual Value	$           8,000.00
C=A - B	Depreciable base	$     2,40,000.00
D	Usage in units(in Hours)	80000
E	Depreciation per hour	$                   3.00

Depreciation schedule-Units of Activity
Year		Units of Production	Depreciation expense	Accumulated Depreciation	Carrying value
2018		14800	$         44,400.00	$ 44,400	$ 203,600
2019		20000	$         60,000.00	$ 104,400	$143,600
2020		20200	$         60,600.00	$ 165,000	$ 83,000
2021		20000	$         60,000.00	$ 225,000	$ 23,000
2022		5000	$         15,000.00	$ 240,000	$ 8000

Part 2

	Straight line	Units of production	DDB
Total depreciation expense	$ 240,000	$ 240,000	$ 240,000
Accumulated depreciation	$ 240,000	$ 240,000	$ 240,000