Question

At the beginning of 2017, your company buys a $28,000 piece of equipment that it expects to use for 4 years. The equipment has an estimated residual value of 2,000. The company expects to produce a total of 200,000 units. Actual production is as follows: 45,000 units in 2017, 47,000 units in 2018, 53,000 units in 2019, and 55,000 units in 2020.


Required:

1. Determine the depreciable cost.
2. Calculate the depreciation expense per year under the straight-line method.
3. Use the straight-line method to prepare a depreciation schedule.
4. Calculate the depreciation rate per unit under the units-of-production method.
5. Use the units-of-production method to prepare a depreciation schedule.

Answer 1

a. Depreciable cost = cost - salvage value

= $28,000 - $2,000

= $26,000

b. Depreciation expense per year (SLM) = (cost - salvage value)/years

= ($28,000 - $2,000)/4

= $6,500

c. Depreciation schedule (SLM)

Year	Depreciation Expense	Accumulated depreciation	Book Value (cost - Accumulated depreciation)
2017	$6,500	$6,500	$21,500
2018	$6,500	$13,000	$15,000
2019	$6,500	$19,500	$8,500
2020	$6,500	$26,000	$2,000

Cost = $28,000

d. Depreciation rate per unit under the units of production method

= (Cost - Salvage value)/total units

= ($28,000-$2,000)/200,000

= $26,000/200,000

= 0.13

e. Depreciation schedule ( units of production method )

year	Depreciation expense	Accumulated depreciation	Book value (cost - Accumulated depreciation)
2017	$5,850	$5,850	$22,150
2018	$6,110	$11,960	$16,040
2019	$6,890	$18,850	$9,150
2020	$7,150	$26,000	$2,000

Depreciation Expense

2017 = 45,000*0.13 = $5,850

2018 = 47,000*0.13 = $6,110

2019 = 53,000*0.13 = $6,890

2020 = 55,000*0.13 = $7,150

Book value

2017 = $28,000 - $5,850 = $22,150

2018 = $28,000 - $11,960 = $16,040

2019 = $28,000 - $18,850 = $9,150

2020 = $28,000 - $26,000 = $2,000