Question
In: Accounting
Crane Company purchased equipment on March 27, 2018, at a cost of $228,000. Management is contemplating...
Crane Company purchased equipment on March 27, 2018, at a cost of
$228,000. 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 $4,000 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: 14,200 units in 2018; 20,200 units in 2019; 20,600 units
in 2020; 20,000 units in 2021; and 5,000 units in 2022. Crane has a
December year end.a)straight line method b)double diminshing
balance method c)units of production method
Solutions
Expert Solution
Cost of the Equipment =$228,000
Residual value =$4,000
Deprecible value =$224,000
Useful life=4 years
A.) Straight line method
Annual Depreciation=Depreciation value / Life
Year 2018 =$224,000/4 =$56,000
Year 2019 =$224,000/4 =$56,000
Year 2020 =$224,000/4 =$56,000
Year 2021 =$224,000/4 =$56,000
Year 2022=$0
B.) Double declining balance method
Depreciation rate =2/ Useful life =2/4 =50%
| Year | Book value | Rate | Depreciation | Accumulated depreciation | Carrying value |
| 2018 | $228,000 | 50% | $114,000 | $114,000 | $114,000 |
| 2019 | $114,000 | 50% | $57,000 | $171,000 | $57,000 |
| 2020 | $57,000 | 50% | $28,500 | $199,500 | $28,500 |
| 2021 | $28,500 | 50% | $14,250 | $213,750 | $14,250 |
| 2022 | $14,250 | 50% | $7,125 | $220,875 | $7,125 |
C.)
Units of production method
Annual Depreciation =Deprecible value/ Production units
=$224,000/80,000
=$2.8
| Year | Production(a) | Depreciation rate(b) | Depreciation Expense(a×b) | Accumulated depreciation |
| 2018 | 14,200 | $2.8 | $39,760 | $39,760 |
| 2019 | 20,200 | $2.8 | $56,560 | $96,320 |
| 2020 | 20,600 | $2.8 | $57,680 | $154,000 |
| 2021 | 20,200 | $2.8 | $56,000 | $210,000 |
| 2022 | 5,000 | $2.8 | $14,000 | $224,000 |
______×______
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ekkarill92 answered 2 years agoRelated Solutions
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