Question

Assume that Sample Company purchased factory equipment on January 1, 2017, for $90,000. The equipment has an estimated life of five years and an estimated residual value of $9,000. Sample's accountant is considering whether to use the straight-line or the units-of-production method to depreciate the asset. Because the company is beginning a new production process, the equipment will be used to produce 10,000 units in 2017, but production subsequent to 2017 will increase by 10,000 units each year. Required: 1. Calculate the depreciation expense, accumulated depreciation, and book value of the equipment under both methods for each of the five years of its life. Enter all amounts as positive values.

Straight-line method:

	Annual	Accumulated	Book
Year	Depreciation	Depreciation	Value
2017
2018
2019
2020
2021

Units-of-production method:

	Annual	Accumulated	Book
Year	Depreciation	Depreciation	Value
2017
2018
2019
2020
2021

Answer 1

Solution

Depreciation schedule-Straight line method
Year		Annual Depreciation	Accumulated Depreciation	Ending Book Value
2017		$             16,200.00	$             16,200.00	$              73,800.00
2018		$             16,200.00	$             32,400.00	$              57,600.00
2019		$             16,200.00	$             48,600.00	$              41,400.00
2020		$             16,200.00	$             64,800.00	$              25,200.00
2021		$             16,200.00	$             81,000.00	$                 9,000.00

.

Depreciation schedule-Units of Activity
Year			Annual Depreciation	Accumulated Depreciation	Ending Book Value
2017			$                      5,400	$                       5,400	$               84,600
2018			$                   10,800	$                    16,200	$               73,800
2019			$                   16,200	$                    32,400	$               57,600
2020			$                   21,600	$                    54,000	$               36,000
2021			$                   27,000	$                    81,000	$                  9,000

.

Working

Straight line Method
A	Cost	$ 90,000
B	Residual Value	$ 9,000
C=A - B	Depreciable base	$ 81,000
D	Life [in years left ]	5
E=C/D	Annual SLM depreciation	$ 16,200

.

Depreciation schedule-Straight line method
Year	Book Value	Depreciation expense	Accumulated Depreciation	Ending Book Value
2017	$          90,000.00	$             16,200.00	$             16,200.00	$              73,800.00
2018	$          73,800.00	$             16,200.00	$             32,400.00	$              57,600.00
2019	$          57,600.00	$             16,200.00	$             48,600.00	$              41,400.00
2020	$          41,400.00	$             16,200.00	$             64,800.00	$              25,200.00
2021	$          25,200.00	$             16,200.00	$             81,000.00	$                 9,000.00

.

Units of Production method
A	Cost	$ 90,000
B	Residual Value	$ 9,000
C=A - B	Depreciable base	$ 81,000
D	Usage in units(in units)	150,000
E	Depreciation per unit	$ 0.54

.

Depreciation schedule-Units of Activity
Year	Book Value	Usage	Depreciation expense	Accumulated Depreciation	Ending Book Value
2017	$                90,000	10000	$                      5,400	$                       5,400	$               84,600
2018	$                84,600	20000	$                   10,800	$                    16,200	$               73,800
2019	$                73,800	30000	$                   16,200	$                    32,400	$               57,600
2020	$                57,600	40000	$                   21,600	$                    54,000	$               36,000
2021	$                36,000	50000	$                   27,000	$                    81,000	$                  9,000