TOPIC 4225

Description

 135. A company purchased equipment valued at $825,000 on January 1. The equipment has an
estimated useful life of seven years or six million units.  The equipment is estimated to have a salvage
value of $35,000.  Assuming the units of production method of depreciation, what is the annual
depreciation for the second year if .5 million units were produced?

136. A company purchased equipment valued at $825,000 on January 1. The equipment has an
estimated useful life of seven years or six million units.  The equipment is estimated to have a salvage
value of $35,000.  Assuming the straight-line method of depreciation, what is the book value at the end
of the second year if .5 million units were produced?

137. Beauty Company purchased a machine valued at $565,000 on September 1. The equipment has an
estimated useful life of eight years or 5.5 million units.  The equipment is estimated to have a salvage
value of $48,300.  Assuming the double declining balance method of depreciation is used, what is the
amount of depreciation expense that needs to be recorded at the end of the second year if 800,000
units were produced?

SOLUTION.

SOL.135

Annual depreciation is calculated as below;

Depreciation per unit = (Purchase cost - Salvage value)/Estimated useful life in units

                                   = ($825,000 - 35,000)/6,000,000

Depreciation per unit = $0.131667 per unit

Annual depreciation for the second year = $0.131667 x 500,000 units

                                                                 = $65,833.50

SOL.136

Book value = Purchase cost - Accumulated Depreciation 

Depreciation per year = (Purchase cost - Salvage value)/Estimated useful life in years
                                   = ($825,000 - 35,000)/7

Depreciation per year = $112,857.1429

Accumulated depreciation for the second year = $225,714.29

Book value = $825,000 - $225,715.29

                  = $599,285.710

SOL.137

Double-declining depreciation rate = (100%/useful) x 2

                                                         = 100%/8 x 2

Double-declining depreciation rate = 25%

Year 1

Depreciation expense = 25% x 565,000 x 4/12

                                    = $47,083 (rounded to the nearest whole number)

Year 2.

Depreciation expense = (565,000 - 47,083) x 25%

                                   = $129,479

So, the depreciation expense to be recorded at the end of second year is $129,479.