Question

In: Accounting

On April 1, 2011, Company A purchased equipment for $100,000. On the purchase, a sales tax...

On April 1, 2011, Company A purchased equipment for $100,000. On the purchase, a sales tax of 15% is being paid. The equipment has defected, so a maintenance cost of $2000 is incurred for repairs. After the equipment arrives, the company must pay the transportation cost of $5000. The company also paid installation and testing costs of $20000. This equipment is estimated to have 5-year useful life. At the end of the 5th year, the salvage value (residual value) will be $20,000. Company A recognizes depreciation to the nearest whole month. Instructions:

Make a deprecation schedule

a. Using a double-declining balance depreciation method.

b. Using straight-line depreciation method.

Solutions

Expert Solution

Assume April 31, is year end

Cost of equipment = Cash purchase price + Transportation cost + Sales tax paid + Installation cost + Preliminary maintenance cost

Cost of equipment = 100000 + 5000 + 15000 + 20000 + 2000 = 142000

Residual value = 20000

a. Using a double-declining balance depreciation method.

Depreciation exp = ( cost - salvage value ) / useful life

Depreciation exp = (142000 - 20000 ) 5 = 24400

.

Depreciation schedule

Year

Depreciation

Accumulated depreciation

Carrying value

01-Apr-11

142000

31-Mar-12

24400

24400

117600

31-Mar-13

24400

48800

93200

31-Mar-14

24400

73200

68800

31-Mar-15

24400

97600

44400

31-Mar-15

24400

122000

20000

.

Under Double decline balance method

Double Decline rate = Straight line rate * 2

Straight line rate = 100 / 5 = 20%

Double Decline rate = 20 * 2 = 40%

.

Not consider salvage value in the beginning year, only consider at the last period of useful life.

.

Year

Beginning value

Rate

Depreciation

Accumulated depreciation

Carrying value

31-Mar-12

142000

40%

56800

56800

85200

31-Mar-13

85200

40%

34080

90880

51120

31-Mar-14

51120

40%

20448

111328

30672

31-Mar-15

30672

40%

10672

122000

20000

.

* Under this method cannot deprecate below salvage value


Related Solutions

On April 1, 2011, Company A purchased equipment for $100,000. On the purchase, a sales tax...
On April 1, 2011, Company A purchased equipment for $100,000. On the purchase, a sales tax of 15% is being paid. The equipment has defected, so a maintenance cost of $2000 is incurred for repairs. After the equipment arrives, the company must pay the transportation cost of $5000. The company also paid installation and testing costs of $20000. This equipment is estimated to have 5-year useful life. At the end of the 5th year, the salvage value (residual value) will...
Oaktree Company purchased new equipment and made the following expenditures: Purchase price $ 50,000 Sales tax...
Oaktree Company purchased new equipment and made the following expenditures: Purchase price $ 50,000 Sales tax 2,700 Freight charges for shipment of equipment 750 Insurance on the equipment for the first year 950 Installation of equipment 1,500 The equipment, including sales tax, was purchased on open account, with payment due in 30 days. The other expenditures listed above were paid in cash. Required: Prepare the necessary journal entries to record the above expenditures. (If no entry is required for a...
On January 1, 2011, Borstad Company purchased equipment for $1,200,000. It is depreciating the equipment over...
On January 1, 2011, Borstad Company purchased equipment for $1,200,000. It is depreciating the equipment over 25 years using the straight-line method and a zero residual value. Late in 2016, because of technological changes in the industry and reduced selling prices for its products, Borstad believes that its equipment may be impaired and will have a remaining useful life of 8 years. Borstad estimates that the equipment will produce cash inflows of $420,000 and will incur cash outflows of $307,000...
On January 1, 2011, Borstad Company purchased equipment for $1,150,000. It is depreciating the equipment over...
On January 1, 2011, Borstad Company purchased equipment for $1,150,000. It is depreciating the equipment over 25 years using the straight-line method and a zero residual value. Late in 2016, because of technological changes in the industry and reduced selling prices for its products, Borstad believes that its equipment may be impaired and will have a remaining useful life of 8 years. Borstad estimates that the equipment will produce cash inflows of $450,000 and will incur cash outflows of $342,000...
Perdue Company purchased equipment on April 1 for $82,620. The equipment was expected to have a...
Perdue Company purchased equipment on April 1 for $82,620. The equipment was expected to have a useful life of three years, or 5,940 operating hours, and a residual value of $2,430. The equipment was used for 1,100 hours during Year 1, 2,100 hours in Year 2, 1,800 hours in Year 3, and 940 hours in Year 4. Required: Determine the amount of depreciation expense for the years ended December 31, Year 1, Year 2, Year 3, and Year 4, by...
Perdue Company purchased equipment on April 1 for $50,490. The equipment was expected to have a...
Perdue Company purchased equipment on April 1 for $50,490. The equipment was expected to have a useful life of three years, or 7,560 operating hours, and a residual value of $1,350. The equipment was used for 1,400 hours during Year 1, 2,600 hours in Year 2, 2,300 hours in Year 3, and 1,260 hours in Year 4. Required: Determine the amount of depreciation expense for the years ended December 31, Year 1, Year 2, Year 3, and Year 4, by...
Perdue Company purchased equipment on April 1 for $58,320. The equipment was expected to have a...
Perdue Company purchased equipment on April 1 for $58,320. The equipment was expected to have a useful life of three years, or 8,100 operating hours, and a residual value of $1,620. The equipment was used for 1,500 hours during Year 1, 2,800 hours in Year 2, 2,400 hours in Year 3, and 1,400 hours in Year 4. Required: Determine the amount of depreciation expense for the years ended December 31, Year 1, Year 2, Year 3, and Year 4, by...
Perdue Company purchased equipment on April 1 for $270,000. The equipment was expected to have a...
Perdue Company purchased equipment on April 1 for $270,000. The equipment was expected to have a useful life of three years or 18,000 operating hours, and a residual value of $9,000. The equipment was used for 7,500 hours during Year 1, 5,500 hours in Year 2, 4,000 hours in Year 3, and 1,000 hours in Year 4. Required: Determine the amount of depreciation expense for the years ended December 31, Year 1, Year 2, Year 3, and Year 4, by...
Perdue Company purchased equipment on April 1 for $89,640. The equipment was expected to have a...
Perdue Company purchased equipment on April 1 for $89,640. The equipment was expected to have a useful life of three years, or 7,560 operating hours, and a residual value of $2,700. The equipment was used for 1,400 hours during Year 1, 2,600 hours in Year 2, 2,300 hours in Year 3, and 1,260 hours in Year 4. Required: Determine the amount of depreciation expense for the years ended December 31, Year 1, Year 2, Year 3, and Year 4, by...
Perdue Company purchased equipment on April 1 for $61,560. The equipment was expected to have a...
Perdue Company purchased equipment on April 1 for $61,560. The equipment was expected to have a useful life of three years, or 7,020 operating hours, and a residual value of $1,890. The equipment was used for 1,300 hours during Year 1, 2,500 hours in Year 2, 2,100 hours in Year 3, and 1,120 hours in Year 4. Required: Determine the amount of depreciation expense for the years ended December 31, Year 1, Year 2, Year 3, and Year 4, by...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT