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On January 1, 2019, Vaughn Company, a small machine-tool manufacturer, acquired for $2,100,000 a piece of...
On January 1, 2019, Vaughn Company, a small machine-tool
manufacturer, acquired for $2,100,000 a piece of new industrial
equipment. The new equipment had a useful life of 5 years, and the
salvage value was estimated to be $83,700. Vaughn estimates that
the new equipment can produce 16,000 machine tools in its first
year. It estimates that production will decline by 2,830 units per
year over the remaining useful life of the equipment.
The following depreciation methods may be used: (1) straight-line,
(2) double-declining-balance, (3) sum-of-the-years’-digits, and (4)
units-of-output. For tax purposes, the class life is 7 years. Use
the MACRS tables for computing depreciation.
(a1)
New attempt is in progress. Some of the new entries may impact the last attempt grading.Your answer is partially correct.
Compute accumulated depreciation under the following methods: (1) straight-line, (2) double-declining-balance, (3) sum-of-the-years’-digits, and (4) units-of-output for the 3-year period ending December 31, 2021. Ignore present value, income tax, and deferred income tax considerations. (Round cost per unit to 2 decimal places, e.g. 25.12. Round other intermediate calculations to 6 decimal places, e.g. 1.524687 amd final answers to 0 decimal places, e.g. 5,125.)
| Accumulated Depreciation | ||||||||
| Methods | 2019 | 2020 | 2021 | |||||
| (1) | Straight-line | $ | $ | $ | ||||
| (2) | Double-declining-balance | $ | $ | $ | ||||
| (3) | Sum-of-the-years'-digits | $ | $ | $ | ||||
| (4) | Units-of-output | $ | $ | $ | ||||
Solutions
Expert Solution
| PARTICULARS | AMOUNT IN $ | ||||
| COST OF EQUIPMENT | 2100000 | ||||
| LIFE IN YEAR | 5 | ||||
| SALVAGE | 83700 | ||||
| NET VALUE | 2016300 | ||||
| 1 | STRAIGHT LINE | NET VALUE/LIFE | |||
| 2016300/5 | 403260 | Per year | |||
| 2 | DOUBLE DECLINING METHOD | BOOK VALUE | DEPRECIATION | DEPRECIATION | CLOSING VALUE |
| % | AMOUNT | ||||
| 1/5*2 | |||||
| 1 | 2100000 | 40% | 840000 | 1260000 | |
| 2 | 1260000 | 40% | 504000 | 756000 | |
| 3 | 756000 | 40% | 302400 | 453600 | |
| 4 | 453600 | 40% | 181440 | 272160 | |
| 5 | 272160 | 69% | 188460 | 83700 | |
| TOTAL DEPRECIATION | 2016300 | ||||
| BOOK VALUE | CALCULATION | DEPRECIATION | DEPRECIATION | ||
| 3 | sum-of-the-years’-digits | % | AMOUNT | ||
| 2016300 | Year 1: 5/15 = 33.33% | 33.33% | 672100 | ||
| 2016300 | Year 2: 4/15 = 26.67% | 26.67% | 537680 | ||
| 2016300 | Year 3: 3/15 = 20% | 20.00% | 403260 | ||
| 2016300 | Year 4: 2/15 = 13.33% | 13.33% | 268840 | ||
| 2016300 | Year 5: 1/15 =6.67% | 6.67% | 134420 | ||
| 2016300 | |||||
| 4 | UNITS PRODUCED | ||||
| Depreciation expense for a given year is calculated by dividing the original cost of the equipment | |||||
| less its salvage value, by the expected number of units the asset should produce given its useful life | |||||
| YEAR | UNITS | ||||
| CALCULATION | UNITS PRODUCED. | ||||
| 1 | 16000 | 16000 | |||
| 2 | 16000-2830 | 13170 | |||
| 3 | 13170-2830 | 10340 | |||
| 4 | 10340-2830 | 7510 | |||
| 5 | 7510-2830 | 4680 | |||
| TOTAL | 51700 | ||||
| COST OF EQUIPMENT LESS SALVAGE | 2016300 | ||||
| 2016300/51700 | |||||
| DEPRECIATION/UNIT | 39 | ||||
| 5 | MACRS DEPRECIATION LIFE 7 YEAR | 2100000 | |||
| 1 | 7.14% | 149940 | |||
| 2 | 14.29% | 300090 | |||
| 3 | 14.29% | 300090 | |||
| 4 | 14.28% | 299880 | |||
| 5 | 14.29% | 300090 | |||
| 6 | 14.28% | 299880 | |||
| 7 |
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