Question

On January 1, 20x1, Perdrillo Company acquired a new drilling machine costing $10,000. Estimated useful life of five years or 36,000 drilling operations and estimated salvage value of $1,000.

1. REQUIRED:  Encircle the one correct answer for each of the following:

Show all supporting calculations or no credit.

      

1. Using straight-line depreciation, 20x1 depreciation expense is:

a. $2,000 b. $7,200 c. $1,800 d. $900 e. None of these.

2. Using units-of-production depreciation and that 8,000 drilling operations were made during 20x1, depreciation expense for 20x1 is:

a. $1,750 b. $1,944 c. $2,000 d. $ 1,800 e. None of th

3. Using declining balance depreciation, depreciation expense for 20x3 is:

a. $3,600 b. $2,000 c. $1,920 d. $1,440 e. None of these.

4. The machine was sold for $2,700 cash at a time when its accumulated depreciation was $8,300. The resulting gain or loss on disposal is:

a. $300 gain b. $1,700 loss c. $1,000 gain d. $2,700 loss

e. None of these

Answer 1

SOLUTION : 1
	CALCULATION OF THE DEPRECIATION AS PER STRAIGHT LINE METHOD
	Purchase Cost of Machine		$                         10,000
	Less: Salvage Value		$                            1,000
	Net Value for Depreciation (A)		$                            9,000
	Useful life of the Assets (B)		5	Years
	Depreciation per year = Value for Depreciation (A/B)		$                            1,800
	Answer = Using SLM method depreication for the year 20X1 = Option C = $ 1,800
SOLUTION : 2
	CALCULATION OF THE DEPRECIATION AS PER UOP METHOD
	Purchase Cost of Equipment =		$                         10,000
	Less: Salvage Value =		$                            1,000
	Net Value for Depreciation (A)		$                            9,000
	Expected to Produce in Units (B)		36,000	Drilling Operations
	Depreciation per Units = (A/B)		$                              0.25	Per Drilling operations
	Year		Units		Depreciable Units	X	Rate Per Unit	=	Depreciation Expenses
	Year 20X1		8,000		8,000	X	$                0.25	=	$                  2,000
	Answer = depreciation for the year 20X1 = Option C = $ 2,000
SOLUTION : 3
	CALCULATION OF THE DEPRECIATION AS PER DECLINE BALANCE METHOD
	Purchase Cost of Equipment =		$                         10,000
	Rate of Depreciation =
	Rate of Depreciation = (1 / 5 Years )		0.20 or 20%
					DEPRECIATION EXPENSS OF THE YEAR
	Year		Assets Cost		Beginning Book Value	X	Rate of Depreciation	=	Depreciation Expenses	Accumulated Depreciation	Book Value
	Purchase		10,000								$           10,000
	Year 20x1				$              10,000	X	20.00%	=	$                  2,000	$                2,000	$             8,000
	Year 20x2				$                8,000	X	20.00%	=	$                  1,600	$                3,600	$             6,400
	Year 20x3				$                6,400	X	20.00%	=	$                  1,280	$                4,880	$             5,120
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