Question

Papa’s Fried Chicken bought equipment on January 2, 2018, for $42,000. The equipment was expected to remain in service for four years and to operate for 9,000 hours. At the end of the equipment’s useful life, Papa’s estimates that its residual value will be $6,000. The equipment operated for 900 the first year, 2,700 hours the second year, 3,600 hours the third year, and 1,800 hours the fourth year.

Prepare a schedule of depreciation expense, accumulated depreciation, and the book value per year for the equipment under the three depreciation methods: straight-line, units-of-production, and double-declining-balance. Show your computations. Three depreciation schedules must be prepared.

Answer 1

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			Purchase price =		42000
			total cost		42000
			Computation of depreciable value
			Total cost		42000
		Less	Salvage value		6000
			Depreciable value		36000
			Depreciation for the year
	Date	Asset cost	i Depreciable cost	ii Useful life	iii=i/iiDepreciation expenses		Accumulated depreciation	Book value
	1-2-2018	42000
	12-31-2018		36000	4	9000		9000	33000
	12-31-2019		36000	4	9000		18000	24000
	12-31-2020		36000	4	9000		27000	15000
	12-31-2021		36000	4	9000		36000	6000
	Unit of production method
	Computation of depreciation expenses per unit
	Depreciation per unit (mile) = (Total cost - salvage value) / hour
	Total hour =				9000
	Depreciable cost	Salvage value	Total mile		Depreciation per mile
	36000	0	9000		4.0
			Depreciation for the year
	Date	Asset cost	Depreciable per unit	Number of unit	Depreciation expenses		Accumulated depreciation	Book value
	1-2-2018	42000
	12-31-2018		4.0	900	3600		3600	38400
	12-31-2019		4.0	2700	10800		14400	27600
	12-31-2020		4.0	3600	14400		28800	13200
	12-31-2021		4.0	1800	7200		36000	6000
	Double declining method
	Depreciation rate = 2/4			50%
			Depreciation for the year
	Date	Asset cost	Book value	DDB rate	Depreciation expenses		Accumulated depreciation	Book value
	1-2-2018	42000
	12-31-2018		42000	50%	21000		21,000	21,000
	12-31-2019		21000	50%	10500		31,500	10,500
	12-31-2020		10500		4500		36,000	6,000
	12-31-2021		6000		0		36,000	6,000