Question

On Jan 2, 2017, Sandstone Enterprises purchased equipment for $129,200. The equipment has a useful life of four years or of 12,000 working hours and after the useful life it will have a residual value of $14,000. The machine was used for 1,900 hours in 2017, 2,800 hours in 2018; 3,700 hours in 2019.

Required:

1. Calculate the depreciation expense for 2017 and 2018 under each of the following methods:

1. Straight-line,
2. Double diminishing-balance, and
3. Units-of -production

2. Record the journal entry for depreciation expense for the year ended December 31, 2017 under the straight-line method.
3. Which method results in the lowest profit for the first two years? Why    (Please answer in proper way) Thanks for your help

Answer 1

1)		Depreciation Expense by	2017	2018
		Straight Line Method	28800	28800
		double declining balance method	64600	32300
		Unit of Production method	18240	9240
	a)	Straight Line Method
		Annual Depreciation by SLM = (129200-14000)/4
		28,800
		Year	Depreciable Amount	Depreciation Expense	Accumulated Depreciation	Carrying Value
						129200
		2017	129200	28,800	28,800	100,400
		2018	100,400	28,800	57,600	71,600
	b)	Calculation of depreciation by double declining balance method
		SLM Depreciation Rate = 28800 /(129200-14000)*100
		=25%
		Depreciation rate for Double Declining balance method = 25%*2 i.e. 50%
		Year	Opening Carrying Value	Depreciation Expense	Accumulated Depreciation	Carrying Value
						129200
		2017	129200	64600	64600	64600
		2018	64600	32300	96900	32300
	c)	Unit of Production method
		Depreciation per unit of production = (129200-14000)/12000
		9.6	per hour
		Year	Units of Production	Depreciation Expense	Accumulated Depreciation	Carrying Value
						129200
		2017	1900	18240	18240	110960
		2018	2800	9240	27480	101720
2)	Date	Accounts NAME	Debit	Credit
	31 Dec . 2017	Depreciation Expense	28800
		Accumulated Depreciation		28800
		(To record depreciation Expense)
3)		Double diminishing method result un low profit due to higher depreciation