Question

At the beginning of 2017, your company buys a $33,200 piece of equipment that it expects to use for 4 years. The equipment has an estimated residual value of 4,000. The company expects to produce a total of 200,000 units. Actual production is as follows: 40,000 units in 2017, 53,000 units in 2018, 48,000 units in 2019, and 59,000 units in 2020.


Required:

1. Determine the depreciable cost.
2. Calculate the depreciation expense per year under the straight-line method.
3. Use the straight-line method to prepare a depreciation schedule.
4. Calculate the depreciation rate per unit under the units-of-production method.
5. Use the units-of-production method to prepare a depreciation schedule.

Answer 1

a.

Depreciable costs = Costs - Residual Value

= $33,200 - $4,000

= $29,200

b.

Depreciation expense per year = (Cost - Residual value) / Years

= ($33,200 - $4,000) / 4 years

= $29,200 / 4

= $7,300

c.

Year	Depreciation expense	Accumulated depreciation	Net Book Value
Acquisition cost			$33,200
2017	$7,300	$7,300	$25,900
2018	$7,300	$14,600	$18,600
2019	$7,300	$21,900	$11,300
2020	$7,300	$29,200	$4,000

Net Book Value = Acquisition cost - Accumulated depreciation

d.

Depreciation rate per unit = Depreciable costs / Total production

= $29,200 / 200,000

= $0.146

e.

Year	Depreciation expense	Accumulated depreciation	Net Book Value
Acquisition cost			$33,200
2017	$5,840	$5,840	$27,360
2018	$7,738	$13,578	$19,622
2019	$7,008	$20,586	$12,614
2020	$8,614	$29,200	$4,000

Depreciation expense = Depreciation rate per unit * Actual production

2017 = $0.146 * 40,000 = $5,840

2018 = $0.146 * 53,000 = $7,738

2019 = $0.146 * 48,000 = $7,008

2020 = $0.146 * 59,000 = $8,614