Question

Wildhorse Co. purchased equipment on March 27, 2018, at a cost of $ 264,000. Management is contemplating the merits of using the diminishing-balance or units-of-production method of depreciation instead of the straight-line method, which it currently uses for other equipment. The new equipment has an estimated residual value of $ 8,000 and an estimated useful life of either four years or 80,000 units. Demand for the products produced by the equipment is sporadic so the equipment will be used more in some years than in others. Assume the equipment produces the following number of units each year: 14,600 units in 2018; 20,600 units in 2019;19,800 units in 2020; 20,000 units in 2021; and 5,000 units in 2022. Wildhorse has a December year end.

(a)

Prepare separate depreciation schedules for the life of the equipment using: (Round depreciation per unit to 2 decimal places, e.g. 5.28 and final answers to 0 decimal places, e.g. 5,275.)

Straight-line method:

Year	Depreciable Cost	Depreciation Expense	Accumulated Depreciation	Carrying Amount
				$
2018	$	$	$
2019
2020
2021
2022

Double-diminishing-balance method:

Year	Opening Carrying Amount	Depreciation Expense	Accumulated Depreciation	Carrying Amount
				$
2018	$	$	$
2019
2020
2021
2022

Units-of-production method:

Year	Units-of-Production	Depreciation Expense	Accumulated Depreciation	Carrying Amount
				$
2018		$	$
2019
2020
2021
2022

Answer 1

Note : Estimated useful life = 4 years (ie April 2018 to March 2022)

Answer

Straight Line Method

= (Cost - Residual Value) / Estimated useful life = ($264,000 - $8,000) / 4 years = $64,000

Year	Depreciable Cost = (Cost - Residual Value)	Depreciation Expense	Accumulated Depreciation
2018	256,000	64,000 * 9/ 12 = 48,000	48,000
2019	256,000	64,000	112,000
2020	256,000	64,000	176,000
2021	256,000	64,000	240,000
2022	256,000	64,000 * 3 / 12 = 16,000	256,000

Double-diminishing-balance method :

= 2 * SLM rate * Opening Carrying Amount.

where SLM Rate = 1 / Estimated useful life = 1/ 4 years = 25 %

Year	Opening Carrying Amount	Depreciation Expense	Accumulated Depreciation
2018	264,000	2 * 25 * $264,000 * 9 / 12 = 99,000	99,000
2019	165,000	2 * 25 % * $165,000 = 82,500	181,500
2020	82,500	2 * 25 % * 82,500= 41,250	222,750
2021	41,250	2 * 25 % * 41,250 = 20,625	243,375
2022	20,625	2 * 25 % * $20,625 * 3 / 12 = 2,578	245,953

.

Units-of-production method:

Dep per unit of production =  [(Cost - Residual Value) / Estimated useful life in units ]

= ($264,000 - $8,000) / 80,000 units = $3.2

Year	Units-of-Production	Depreciation Expense [Dep per unit of production * Units]	Accumulated Depreciation
2018	14,600	46,720	46,720
2019	20,600	65,920	112,640
2020	19,800	63,360	176,000
2021	20,000	64,000	240,000
2022	5,000	16,000	256,000

.