Question

Exact Photo Service purchased a new color printer at the beginning of Year 1 for $39,700. The printer is expected to have a four-year useful life and a $3,700 salvage value. The expected print production is estimated at $1,770,500 pages. Actual print production for the four years was as follows:

Year 1		550,700
Year 2		477,500
Year 3		375,300
Year 4		390,000
Total		1,793,500

The printer was sold at the end of Year 4 for $4,100.

b. Compute the depreciation expense for each of the four years, using units-of-production depreciation.

Depreciation Expense

Year 1

Year 2

Year 3

Year 4

Total accumulated depreciation$0

Exact Photo Service purchased a new color printer at the beginning of Year 1 for $39,700. The printer is expected to have a four-year useful life and a $3,700 salvage value. The expected print production is estimated at $1,770,500 pages. Actual print production for the four years was as follows:

Year 1		550,700
Year 2		477,500
Year 3		375,300
Year 4		390,000
Total		1,793,500

The printer was sold at the end of Year 4 for $4,100.

c. Calculate the amount of gain or loss from the sale of the asset under each of the depreciation methods.

DDB =

Units-of-production=

Answer 1

Ans. B	Units of production depreciation = (Cost of asset - Residual value) / Expected activity * Actual activity
	Year	Calculations	Depreciation
	1	($39,700 - $3,700) / $1,770,500 * 550,700	$11,198
	2	($39,700 - $3,700) / $1,770,500 * 477,500	$9,709
	3	($39,700 - $3,700) / $1,770,500 * 375,300	$7,631
	4	($39,700 - $3,700) / $1,770,500 * 390,000	$7,930
	Accumulated Depreciation		$36,468
Ans. C	Double declining balance method:
	Double declining balance depreciation rate = 2 * 1 / life of assets
		2 * 1 / 4
		0.50
	Year	Remaining value at the beginning (a)	Depreciation (b = a*0.50)	Book value at the end (a - b)
	1	$39,700	$19,850	$19,850
	2	$19,850	$9,925	$9,925
	3	$9,925	$4,962.50	$4,962.50
	4	$4,962.50	$1,262.50	$3,700
	Accumulated Depreciation		$36,000
	At the end of useful life the remaining book value is equal to the residual value under Double declining balance method.
	So, the depreciation of Year 4   = Remaining book value at beginning ($4,962.50) - Residual value ($3,700) =   $1,262.50.
	Calculation of Gain or loss on sale of Asset:
1	Units of production method:
	Remaining value at the end of Year 4 = Cost of Asset - Accumulated depreciation
		$39,700 - $36,468
		$3,232
	Gain on sale of asset = Sales value - Book value at the end of year 4
		$4,100 - $3,232
		$868
2	Double declining balance method:
	Gain on sale of asset = Sales value - Book value at the end of year 4
		$4,100 - $3,700
		$400
	Gain on sale =   Sales value of assets > Book value