Question

1. On January 1, 2019, ABC Company purchased a new piece of equipment.
The equipment was assigned a $7,000 residual value and is expected
to produce a total of 60,000 units over its life. The depreciation
expense reported on the equipment for 2019 was $10,734. During 2020,
the equipment was used to produce 9,000 units. At December 31, 2020,
the book value of the equipment was $57,466. ABC Company is using the
units-of-production depreciation method to depreciate the equipment.

Calculate the original cost paid by ABC Company to purchase the
equipment on January 1, 2019.

2. On June 1, 2018, XYZ Company paid $150,000 to purchase some equipment.

The equipment was assigned a useful life of 20 years and was to be
depreciated using the straight-line method.

On October 31, 2022, XYZ Company sold the equipment for $102,970 cash.
XYZ Company recorded a loss on the sale equal to $14,965.

Calculate the residual value that was assigned to the equipment.

Answer 1

1)

Under units of production method, annual depreciation is calculated based on estimated depreciation per unit calculated as

Depreciation per unit = (cost of the asset-residual value)/estimated toatal unit of production

when residual value = $7000 and estimated total units of production = 60000 units

Depreciation per unit = (cost of the asset - $7000)/ 60000

Book value at the end of 2020= Book value at the end of 2019 - depreciation for 2020 where

Book value at the end of 2019 = cost of equipment -depreciation for 2019 and

depreciation for 2020 = no. of units produced in 2020 * [(cost of equipment-$7000)/60000]

= (cost of equipment - $7000) * 0.15 = (cost of equipment * 0.15)-$1050

therefore

Book value at the end of 2020= (cost of equipment-$10734)-[(cost of equipment*0.15)-$1050

$57466=cost of equipment-$10734-(cost of equipment*.015)+$1050

$57466=(cost of equipment*(1-0.15)-$9684

$57466+$9684=cost of equipment*(1-0.15)

$67150=cost of equipment*085

cost of equipment=$67150/.85

cost of equipment= $79000

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