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CC9-1 Accounting for the Use and Disposal of Long-Lived Assets [LO 9-3, LO 9-5]

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Nicole’s Getaway Spa (NGS) purchased a hydrotherapy tub system to add to the wellness programs at NGS. The machine was purchased at the beginning of the year at a cost of $19,500. The estimated useful life was five years and the residual value was $500. Assume that the estimated productive life of the machine is 10,000 hours. Expected annual production was year 1, 2,300 hours; year 2, 2,500 hours; year 3, 2,100 hours; year 4, 2,100 hours; and year 5, 1,000 hours.

CC9-1 Part 3

3. The following amounts were forecast for year 3: Sales Revenues $57,000; Cost of Goods Sold $44,000; Other Operating Expenses $4,300; and Interest Expense $900. Create an income statement for year 3 for each of the different depreciation methods, ending at Income before Income Tax Expense. (Don't forget to include a loss or gain on disposal for each method.). (Do not round intermediate calculations. Round your answers to the nearest dollar amount.)

Answer 1

Year	Straight line method	Units of production	Double declining bal.
1	$3,800	$4,370	$7,800
2	$3,800	$4,750	$4,680
3	$3,800	$3,990	$2,808
4	$3,800	$3,990	$1,685
5	$3,800	$1,900	$2,027
NICOLE'S GETAWAY SPA
(Forecasted) Income Statement
For the Year Ended Year 3
	Straight line method	Units of production	Double declining bal.
Sales Revenue	$57,000	$57,000	$57,000
Cost of goods sold	$44,000	$44,000	$44,000
Gross Profit	$13,000	$13,000	$13,000
Operating Expenses
Depreciation Expenses	$3,800	$3,990	$2,808
Other Operating Expenses	$4,300	$4,300	$4,300
Loss(Gain) on Disposal
Total Operating Expenses	$8,100	$8,290	$7,108
Income from operations	$4,900	$4,710	$5,892
Interest Expenses	$900	$900	$900
Income before Income Tax Expesnes	$4,000	$3,810	$4,992
Note: Question does not have loss(gain) on disposal, so we ignored that part