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

ekkarill92 answered 2 years ago

on December 27, 2014 wolcott windows purchased a piece of equipment for 107,500. the estimated useful...

on December 27, 2014 wolcott windows purchased a piece of equipment for 107,500. the estimated useful life of the equipment is either three years or 60,000 units, with a residual value of 10,500. the company has a December 31 fiscal year end and normally used straight-line detection. management us considering the merits of using the units of production or diminishing balance method of detection instead of the straight line method. the actual numbers of units produced by the equipment were...

On December 27, 2018, Oriole Windows purchased a piece of equipment for $102,000. The estimated useful...

On December 27, 2018, Oriole Windows purchased a piece of equipment for $102,000. The estimated useful life of the equipment is either three years or 50,000 units, with a residual value of $12,000. 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 diminishing-balance method of depreciation instead of the straight-line method. The actual numbers of units produced by the equipment were 8,500 in 2019, 16,000...

Manufacturing Company purchased a piece of equipment for $1,520,000 at the beginning of 2014. The equipment...

Manufacturing Company purchased a piece of equipment for $1,520,000 at the beginning of 2014. The equipment has an estimated useful life of four years and an estimated residual value of $150,000. The equipment should produce 20,000 units. It produced in each year: 4,000 in 2014; 8,000 in 2015; 5,000 in 2016; and 3,000 in 2017. Required (10 points): a. Compute the annual depreciation expense, accumulated depreciation and carrying value for the equipment for each year assuming the following depreciation methods...

Your company just purchased a piece of equipment. The maintenance cost of the equipment is estimated...

Your company just purchased a piece of equipment. The maintenance cost of the equipment is estimated at $1,200 for the first year and it is to rise by $200 each year. How much should be set aside now to have enough to cover for the maintenance cost for the next 7 years? Assume payments are made at the end of each year and an interest rate of 4%.

On January 1, 2017, Sunland Company purchased a copyright for $2292000, having an estimated useful life...

On January 1, 2017, Sunland Company purchased a copyright for $2292000, having an estimated useful life of 16 years. In January 2021, Sunland paid $339000 for legal fees in a successful defense of the copyright. Copyright amortization expense for the year ended December 31, 2021, should be

A contractor purchased a piece of heavy equipment of $60,000 with an estimated life of 10...

A contractor purchased a piece of heavy equipment of $60,000 with an estimated life of 10 years and a salvage value of $5,000. The company's effective tax rate for state and federal taxes is 40% and its minimum attractive rate of return is 10%. The gross income generated by the equipment before depreciation and taxes was estimated to be $8000 per year. Determine the after-tax cash flow for each year. Compare the present worths for the following methods of depreciation....

A piece of equipment is purchased for $40,000 and has an estimated salvage value of $1,000...

A piece of equipment is purchased for $40,000 and has an estimated salvage value of $1,000 at the end of the recovery period, a recovery period is five years. Prepare a depreciation schedule for the piece of equipment using the straight-line method

ABC Co. purchased a machine on April 1, 2014 for $82,000 with an estimated useful life...

ABC Co. purchased a machine on April 1, 2014 for $82,000 with an estimated useful life of 6 years and salvage value of $4,000. They sold the machine on July 1, 2019, for $15,000. Assuming ABC Co. uses the straight line method of depreciating its assets, the journal entry to record the sale of the machine would include a: A. Debit to Loss for $1,250 B. Credit to Machine for $13,750 C. Credit to Gain for $1,250 D. Credit to Accumulated Depreciation...

Muggsy Bogues Company purchased equipment for $280,350 on October 1, 2014. It is estimated that the...

Muggsy Bogues Company purchased equipment for $280,350 on October 1, 2014. It is estimated that the equipment will have a useful life of 8 years and a salvage value of $21,000. Estimated production is 39,900 units and estimated working hours are 20,500. During 2014, Bogues uses the equipment for 520 hours and the equipment produces 1,000 units. Compute depreciation expense under each of the following methods. Bogues is on a calendar-year basis ending December 31. (a) Straight-line method for 2014...

part 1) A piece of equipment is purchased for $400,000 and has an estimated salvage value...

part 1) A piece of equipment is purchased for $400,000 and has an estimated salvage value of $50,000 at the end of a five year recovery period. Using the sum of the years depreciation method, what is the book value in year 4? Group of answer choices $73,333 -$216,667 $120,000 $50,000 part 2) A piece of equipment is purchased for $100,000 and has an estimated salvage value of $12,000 at the end of a seven year recovery period. Using the...