Question

Sonic Corporation purchased and installed electronic payment equipment at its drive-in restaurants in San Marcos, TX, at a cost of $27,000. The equipment has an estimated residual value of $1,500. The equipment is expected to process 255,000 payments over its three-year useful life. Per year, expected payment transactions are 61,200, year 1; 140,250, year 2; and 53,550, year 3. Required: Complete a depreciation schedule for each of the alternative methods. Straight-line. Units-of-production. Double-declining-balance.

Answer 1

Straight line Depreciation = (Original Value - Salvage Value) / Useful Life
= ($27000 - $1500) / 3 = $8500 per year

Year	Beginning Value	Depreciation	Accumulated Depreciation	Ending Value
1	$                 27,000	$         8,500	$              8,500	$          18,500
2	$                 18,500	$         8,500	$            17,000	$          10,000
3	$                 10,000	$         8,500	$            25,500	$            1,500

Double Declining Balance Method = Beginning Book Value x 2 x 1/3 (i.e. 2 times Straight line rate)

Year	Beginning Value	Depreciation	Accumulated Depreciation	Ending Value
1	$                 27,000	$ 18,000.00	$            18,000	$            9,000
2	$                   9,000	$    6,000.00	$            24,000	$            3,000
3	$                   3,000	$    1,500.00	$            25,500	$            1,500

Maximum Depreciation is such that ending value doesnot goes below $1500, that is why depreciation for year 3 is $1500 instead $2000

Units of Production Method = (Original Value - Salvage Value) / Activity
= ($27000 - $1500) / 255000 = $0.10 per payment

Year	Beginning Value	Depreciation	Accumulated Depreciation	Ending Value
1	$                 27,000	$         6,120	$              6,120	$          20,880
2	$                 20,880	$       14,025	$            20,145	$            6,855
3	$                   6,855	$         5,355	$            25,500	$            1,500