Question

Use the following information for the next 5 questions:

On January 1, 2008, KA Company purchased equipment for $105,000.  The estimated useful life of the equipment is 10 years, during which time it will be produce 100,000 units.  Estimated residual value is $5,000.  KA’s fiscal year is January 1 to December 31.

            

If KA Company uses the straight-line methodof depreciation, the net book valueof the asset at the end of the secondyear will be:

If KA Company uses the units methodof depreciation and produced 30,000 units in the first year, the depreciation expensefor the firstyear will be:

If KA Company uses the double-declining-balance methodof depreciation, the balance in accumulated depreciationat the end of the second year will be:

4.If he company should recognize a:

a. $70,000 loss on the sale

b. $35,000 gain on the sale

c. $10,000 gain on the sale

d. $10,000 loss on the sale

e.None of the above.

Assume KA Company purchased the equipment on July 1, 2008. What is the net book valueof the equipment on December 31, 2010, after adjusting entries, if KA Company uses the straight-line methodof depreciation?

Answer 1

Solution 1:

Annual depreciation using SLM = ($105,000 - $5,000) / 10 = $10,000

Total depreciation for 2 years = $10000 * 2 = $20,000

net book valueof the asset at the end of the secondyear will be = Cost of assets - Accumulated depreciation

= $105,000 - $20,000 = $85,000

Solution 2:

Depreciation expense for first year using unit of production method = Depreciation cost * Prodution for the year / Estimated production during life of asset

= ($105,000 - $5,000) * 30000 / 100000 = $30,000

Solution 3:

Depreciation rate SLM = 10%

Depreciation rate DDB = 10% * 2 = 20%

Depreciation Schedule - Double Declining Method
Year	Depreciation Expense	Accumulated Depreciation	Net Book Value
Acquisition Cost			$105,000.00
1	$21,000.00	$21,000.00	$84,000.00
2	$16,800.00	$37,800.00	$67,200.00

the balance in accumulated depreciationat the end of the second year will be = $37,800

Solution 4:

Complete information of sale of assets for question 4 is not available. Therefore i am unable to solve it.

Solution 5:

If company purchase equipment on July 1, 2008 then period up to December 31, 2010 = 2.5 years

Annual depreciation using SLM = $10,000

Depreciation up to 2010 = 10000 * 2.5 = $25,000

Net book value of equipment on Dec 31, 2010 = $105,000 - $25,000 = $80,000