Question

In: Accounting

n December 27, 2014, Sunland Windows purchased a piece of equipment for $103,500. The estimated useful...

n December 27, 2014, Sunland Windows purchased a piece of equipment for $103,500. The estimated useful life of the equipment is either three years or 57,000 units, with a residual value of $6,750. The company has a December 31 fiscal year end and normally uses straight-line depreciation. Management is considering the merits of using the units-of-production or the diminishing-balance method of depreciation instead of the straight-line method. The actual numbers of units produced by the equipment were 9,250 in 2015, 16,750 in 2016, and 30,000 in 2017. The equipment was sold on January 5, 2018, for $15,000.

(a)

Calculate the depreciation for the equipment for 2015 to 2017 under

1.		the straight-line method
2.		the diminishing-balance method, using a 40% rate; and
3.		units-of-production

(Round depreciable amount per unit to 3 decimal places, e.g. 1.252 and the final answers to 0 decimal places, e.g. 126.)

	Depreciation Expense
	Straight-Line	Diminishing-Balance	Units-of-Production
2015	$	$	$
2016
2017

Expert Solution

Under Straight line method

Depreciation expense per year= (Original cost-Residual value)/Estimated useful life

= ($103,500-7000)/3

= $32,166.66

Year	Depreciation expense	Accumulated depreciation	Book value at the end of the year
2015	$32,166.66	$32,166.66	(103500-32,166.6)= 71333
2016	$32,166.66	(32166.66+32166.66)= 64,333	(71333-32166.66)= 39166
2017	32,166.66	(64,333+3216.66)= 96,500	(39166-3216.66)= 7000

Under Diminishing-balance method

Depreciation rate= 40%

Year	Depreciation expense	Accumulated depreciation	Book value at the end of the year
2015	(103500*40%)= $41400	$41400	(103500-41400)= 62100
2016	(62100*40%)= 24840	(41400+24840)= 66,240	(62100-24840)= 37,260
2017	(37260*40%)= 14904	(66240+14904)= 81144	(37,260-14904)= 22356

Under Units-of-production method

Depreciation expense per year= (Original cost-Residual value)/Estimated units

= ($103500-7000)/57000

= $1.69 per year

Year	Depreciation expense	Accumulated depreciation	Book value at the end of the year
2015	(9250*$1.69)= 15632.5	$15632.5	(103500-15632.5)= 87867.5
2016	(16750*$1.69)= 28307.5	(15,632.5+28,307.5)= 43940	(87867.5-28307.5)= 59,560
2017	(30,000*$1.69)= 50700	(43,940+50700)= 94,640	(59560-50700)= 8860

	Depreciation Expense
	Straight-Line	Diminishing-Balance	Units-of-Production
2015	$32166.66	$41400	$15632.5
2016	32166.66	24840	28307.5
2017	32166.66	14904	50700

Calculate the gain or loss on the sale of the equipment under each of the three methods

	Straight-Line	Diminishing-Balance	Units-of-Production
Book value at the end of 2019	$7000	$22356	$8860
Sales prices	15000	15000	15000
Loss (gain) on sale of equipment	$(8000)	$7356	$(6140)
	Gain	Loss	Gain

Calculate the total depreciation expense plus the loss on sale (or minus the gain on sale) under each of the three depreciation methods.

	Straight-Line	Diminishing-Balance	Units-of-Production
Total depreciation expense	$96500	$81144	$94640
Loss (gain) on sale of equipment	(8000)	7356	(6140)
Net expense	$88500	$88500	$88500

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