Question

Please show all the calculation.

Problem 9-4A a-b (Part Level Submission) Pharoah Company purchased equipment on March 27, 2018, at a cost of $312,000. 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: 14,200 units in 2018; 20,000 units in 2019; 20,800 units in 2020; 20,000 units in 2021; and 5,000 units in 2022. Pharoah has a December year end. Year Units-of-Production Depreciation Expense Accumulated Depreciation Carrying Amount

Straight-line method: Double-diminishing-balance method: Units-of-production method:

Q2

Pharoah Enterprises purchased equipment on March 15, 2018, for $81,910. The company also paid the following amounts: $470 for freight charges; $219 for insurance while the equipment was in transit; $1,707 for a one-year insurance policy; $2,212 to train employees to use the new equipment; and $3,041 for testing and installation. The equipment was ready for use on April 1, but the company did not start using it until May 1. Pharoah has estimated the equipment will have a 10-year useful life with no residual value. It expects to consume the equipment’s future economic benefits evenly over the useful life. The company has a December 31 year end.

Cost of the equipment =

Answer 1

Q1:
Straight-line method:
Depreciation rate=One year/Useful life=1/4=0.25=25%
Depreciable cost=Cost-Residaul value=312000-8000=$ 304000
Straight-line depreciation schedule
Date	Asset cost	Depreciation rate	Depreciable cost	Depreciation expense	Accumulated depreciation	Carrying amount
March 27,2018	312000					312000
December 31,2018	(for 9 months)	25%	304000	57000	57000	255000
				(304000*25%*9/12)
December 31,2019		25%	304000	76000	133000	179000
December 31,2020		25%	304000	76000	209000	103000
December 31,2021		25%	304000	76000	285000	27000
December 31,2022	(for 3 months)	25%	304000	19000	304000	8000
				(304000*25%*3/12)
Depreciation expense=Depreciable cost*Depreciation rate
Asset book value=Cost-Accumulated depreciation
Accumulated depreciation=Depreciation expense till date
Double-diminishing-balance method:
DDB rate=SL depreciation rate*DDB rate multiplier=25%*2=50%
Date	Asset cost	DDB rate	Asset book value	Depreciation expense	Accumulated depreciation	Asset book value
March 27,2018	312000					312000
December 31,2018	(for 9 months)	50%	312000	117000	117000	195000
				(312000*50%*9/12)
December 31,2019		50%	195000	97500	214500	97500
December 31,2020		50%	97500	48750	263250	48750
December 31,2021		50%	48750	24375	287625	24375
December 31,2022	(for 3 months)	50%	24375	3047	290672	21328
				(24375*50%*3/12)
Depreciation expense=Asset book value*Depreciation rate
Units-of-production method:
Depreciation expense per unit=Depreciable cost/Total unit output=304000/80000=$ 3.8 per unit
Units of production depreciation schedule:
Date	Asset cost	Depreciation per unit	Number of units	Depreciation expense	Accumulated depreciation	Asset book value
January 2,2018	312000					312000
December 31,2018		3.8	14200	53960	53960	258040
December 31,2019		3.8	20000	76000	129960	182040
December 31,2020		3.8	20800	79040	209000	103000
December 31,2021		3.8	20000	76000	285000	27000
December 31,2022		3.8	5000	19000	304000	8000
Depreciation expense=Depreciation per unit*Depreciation rate
Q2:
Cost of the equipment:
		$
Purchase price		81910
Freight charges		470
Transit insurance		219
Employee training		2212
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