Question

Answer the questions to each of the following independent parts.

Part A. On January 2, 2019, a machine was purchased for $180,000. It has an estimated useful life of ten years and an estimated residual value of $14,000. The company uses the declining-balance method of depreciation with a declining balance rate of 20%.

Depreciation expense for 2019 = $_________________________.

Depreciation expense for 2020 = $_________________________.

Part B. Vehicle purchased for $50,000 has an estimated useful life of five years and a residual value of $3,800. It is expected to be driven 210,000 kilometers over its useful life. The asset was driven 80,000 kilometers in the first year and 45,000 kilometers in the second year. The company uses the units of production method,

Depreciation for the second year $_____________________________.

Part C. A machine costing $72,000, with an estimated useful life of five years and a residual value of $12,000, is depreciated by the straight-line method. This asset is sold for $50,000 at the end of the second year of use.

Annual Depreciation expense $______________________________

The gain or loss on the disposal is $___________________________

Answer 1

Answer-Part-A)- Depreciation expense for 2019 = $36000.

Depreciation expense for 2020 =$28800.

Explanation- Double diminishing balance method = Cost of equipment*Depreciation rate

Depreciation expense December 31 2019= $180000*20%

= $36000

Book value at the end of December 31 2019= $180000 - $36000 = $144000

Depreciation expense in December 31 2020= $144000*20% = $28800

Answer-Part B)- Depreciation expense for second year = $9900.

Explanation- Units of production method:-Annual depreciation expense per unit-

=Cost – salvage /Total kilometres driven

=($50000-$3800)/210000 kilometres

= $0.22 per kilometres

Depreciation expense in for second year = Depreciation expense per km. driven* Total kilometres driven in second year

= $0.22 per kilometres*45000 kilometres driven

= $9900

Answer-Part C)- Annual depreciation expense = $12000.

The gain on the disposal is $4000

Explanation- Straight line Method-

= Cost of asset- Salvage value of asset/No. of useful life (years)

=($72000-$12000)/5 years

=$60000/5 years                

= $12000         

Annual depreciation expense = $12000

Book value of end of the second year = $70000-$12000-$12000

= $46000

Gain on the disposal of machine = Sale value of machine - Book value of end of the second year

= $50000-$46000

= $4000