Question

*Problem 9-4A a-b (Part Level Submission) Blossom Company purchased equipment on March 27, 2018, at a cost of $272,000. 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 $8,000 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. Assure the equipment produces the following number of units each year: 14,200 units in 2018; 20,400 units in 2019; 20,400 units in 2020; 20,000 units in 2021; and 5,000 units in 2022. Blossom has a December year end. *(a) 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.g. 5,275.) Straight-line method: Year Depreciable Depreciation Accumulated Cost Expense Depreciation Carrying Amount 2018 2019 2020 2021 2022 Double-diminishing-balance method: Opening Carrying Amount Depreciation Accumulated Expense Depreciation Carrying Amount Year 2018 2019 2020 2021 2022

Answer 1

Blossom Company

Depreciation under Straight line method = (cost - estimated residual value) / useful life

= (272,000-8,000) / 4 = 264,000/4 = $ 66,000

Depreciable cost = 272,000-8,000 = $ 264,000

Rate under double declining balance method = 2 × Depreciation under SLM /(cost - estimated residual value)

= 2×(66,000/264,000) = 50%

Under straight line method:

Year	Depreciable cost ($)	Depreciation expenses ($)	accumulated depreciation ($)	carrying value ($)
				272,000
2018	264,000	66,000×9/12 = 49,500	49,500	272,000-49,500 = 222,500
2019	264,000-49,500 = 214,500	66,000	66,000+49,500 = 115,500	222,500-66,000 = 156,500
2020	214,500-66,000 = 148,500	66,000	115,500+66,000 = 181,500	156,500-66,000 = 90,500
2021	148,500-66,000 = 82,500	66,000	181,500+66,000 = 247,500	90,500-66,000 = 24,500
2022	82,500-66,000 = 16,500	66,000×3/13 = 16,500	247,500+16,500 = 264,000	24,500-16,500 = 8,000

Under double declining balance method:

Year	Opening carrying value	depreciation expenses	accumulated depreciation	Carrying value
				272,000
2018	272,000	264,000×50% = 132,000	132,000	272,000-132,000 = 140,000
2019	272,000-132,000 = 140,000	132,000×50% = 66,000	132,000+66,000 = 198,000	140,000-66,000 = 74,000
2020	140,000-66,000 = 74,000	66,000×50% = 33,000	198,000+33,000 = 231,000	74,000-33,000 = 41,000
2021	74,000-33,000 = 41,000	33,000×50% = 16,500	231,000+16,500 = 247,500	41,000-16,500 = 24,500
2022	41,000-16,500 = 24,500	16,500*	247,500+16,500 = 264,000	24,500-16,500 = 8,000

* Rounded off

Units of production method:

Year	units of production	depreciation	accumulated depreciation	carrying value
				272,000
2018	14,200	264,000×14,200/80,000 = 46,860	46,860	272,000-46,860 = 225,140
2019	20,400	264,000×20,400/80,000 = 67,320	46,860+67,320 = 114,180	225,140-67,320 = 157,820
2020	20,400	264,000×20,400/80,000 = 67,320	114,180+67,320 = 181,500	157,820-67,320 = 90,500
2021	20,000	264,000×20,000/80,000 = 66,000	181,500+66,000 = 247,500	90,500-66,000 = 24,500
2022	5,000	264,000×5,000/80,000 = 16,500	247,500+16,500 = 264,000	24,500-16,500 = 8000