Question

Manufacturing Company purchased a piece of equipment for $1,520,000 at the

beginning of 2014. The equipment has an estimated useful life of four years and an estimated

residual value of $150,000. The equipment should produce 20,000 units. It produced in each

year: 4,000 in 2014; 8,000 in 2015; 5,000 in 2016; and 3,000 in 2017.

Required (10 points):

a. Compute the annual depreciation expense, accumulated depreciation and carrying value for

the equipment for each year assuming the following depreciation methods (a) straight-line,

(b) production, and (c) double-declining balance.

b. Prepare the adjusting entry that would be made in 2015 to record the depreciation

calculated under the double-declining balance method.

c. Show the balance sheet presentation for the equipment after the adjusting entry in 2015

using the double-declining balance method.

2.

Answer 1

• All working forms part of the answer
• Requirement ‘a’

---Straight Line Method

A	Cost	$      1,520,000.00
B	Residual Value	$          150,000.00
C=A - B	Depreciable base	$      1,370,000.00
D	Life [in years]	4
E=C/D	Annual SLM depreciation	$          342,500.00

Year	Book Value	Depreciation expense	Ending Book Value	Accumulated Depreciation
2014	$ 1,520,000.00	$          342,500.00	$   1,177,500.00	$           342,500.00
2015	$ 1,177,500.00	$          342,500.00	$       835,000.00	$           685,000.00
2016	$     835,000.00	$          342,500.00	$       492,500.00	$       1,027,500.00
2017	$     492,500.00	$          342,500.00	$       150,000.00	$       1,370,000.00

---Production Method

A	Cost	$      1,520,000.00
B	Residual Value	$          150,000.00
C=A - B	Depreciable base	$      1,370,000.00
D	Usage	20,000 units
E	Depreciation per …..	$                    68.50 unit

Year	Book Value	Usage	Depreciation expense	Ending Book Value
2014	$ 1,520,000.00	4,000	$       274,000.00	$       1,246,000.00
2015	$ 1,246,000.00	8,000	$       548,000.00	$           698,000.00
2016	$     698,000.00	5,000	$       342,500.00	$           355,500.00
2017	$     355,500.00	3,000	$       205,500.00	$           150,000.00

---Double Declining Balance method

A	Cost	$      1,520,000.00
B	Residual Value	$          150,000.00
C=A - B	Depreciable base	$      1,370,000.00
D	Life [in years]	4
E=C/D	Annual SLM depreciation	$          342,500.00
F=E/C	SLM Rate	25.00%
G=F x 2	DDB Rate	50.00%

Year	Beginning Book Value	Depreciation rate	Depreciation expense	Ending Book Value
2014	$ 1,520,000.00	50.00%	$       760,000.00	$           760,000.00
2015	$     760,000.00	50.00%	$       380,000.00 (used in entry below)	$           380,000.00
2016	$     380,000.00	50.00%	$       190,000.00	$           190,000.00
2017	$     190,000.00		$         40,000.00	$             150,000.00

• Requirement ‘b’

Accounts title & Explanation	Debit	Credit
Depreciation expenses (Equipment)	$           380,000.00
Accumulated Depreciation (Equipment)		$   380,000.00
(depreciation recorded for 2015)

• Requirement ‘c’

Partial Balance Sheet
as at 31 Dec 2015
Equipment	$       1,520,000.00
Less:
Accumulated Depreciation Equipment [760000 (2014) + 380000 (2015)]	$       1,140,000.00
Equipment , NET	$           380,000.00