Question

In: Accounting

Modern Products Company purchased new packaging equipment for $262,000 on January 1, 2016. The equipment is...

Modern Products Company purchased new packaging equipment for $262,000 on January 1, 2016. The equipment is expected to be used for 5 years, or 66,000 operating hours. It has an estimated salvage value of $1,000. The equipment was used for 13,200 hours in 2016, 19,800 hours in 2017, and 16,500 hours in 2018.

Compute annual depreciation expense for the first three years, using the straight-line method, the double-declining balance method, and the units of output method

Expert Solution

a)

Depreciation under straight line method

(Purchase cost – Salvage value) / Useful life

($262,000- $1,000) / 5

= $ 52,200

Depreciation under straight line method is same for all years. So, Depreciation for 2016 = 2017 = 2018 = $ 52,200

b)

Depreciation under units of output method

= (Purchase cost – Salvage value) / Useful life in operating hours

= ($262,000- $1,000) / 66,000

= $ 3.9545 per hour

So, Depreciation for 2016 = Number of hours x Hourly rate

= 13,200 x $3.9545

= $52,200

Depreciation for 2017

= 19,800 x $3.9545

= $ 78,300

Depreciation for 2018

= 16,500 x $3.9545

= $ 65,250

c)

Depreciation under double declining balance method is double the rate of straight line method and is applied on the written down book value of the asset at the beginning of the year

Straight line rate = 1 / Useful life

= 1 / 5

= 0.20 or 20%

Double declining rate

= 2 x Straight line rate

= 2 x 20%

= 40%

Depreciation of 2016

= Book value at beginning of the year x Depreciation rate

= $262,000 x 40%

= $104,800

Book value at beginning of 2017 = Book value at beginning of 2016 – Depreciation for 2016

= $262,000 - $104,800

= $157,200

Depreciation for 2017

= $157,200 x 40%

= $62,880

Book value at beginning of 2018

= $157,200 - $62,880

= $94,320

Depreciation for 2018

= $94,320 x 40%

= $37,728

ekkarill92 answered 1 year ago

On January 1, 2016, the Harold Company purchased equipment at a cost of $400,000. The equipment...

On January 1, 2016, the Harold Company purchased equipment at a cost of $400,000. The equipment was expected to have a service life of 10 years and a $20,000 residual value. The company’s fiscal year-end is December 31, and the double-declining balance (DDB) depreciation method is used. During 2018, the company switched from the DDB to the straight-line method. In 2018, the adjusting entry to depreciation expense is: a. $22,500 b. $29,500 c. $31,625 d. $44,775

Fellingham Corporation purchased equipment on January 1, 2016, for $240,000. The company estimated the equipment would...

Fellingham Corporation purchased equipment on January 1, 2016, for $240,000. The company estimated the equipment would have a useful life of 10 years with a $40,000 residual value. Fellingham uses the straight-line depreciation method. Early in 2019, Fellingham reassessed the equipment's condition and determined that its total useful life would be only eight years in total and that it would have a $20,000 residual value. How much would Fellingham report as depreciation on this equipment for 2019? a) 36,000 b)...

1. On January 1, 2019, ABC Company purchased a new piece of equipment. The equipment was...

1. On January 1, 2019, ABC Company purchased a new piece of equipment. The equipment was assigned a $7,000 residual value and is expected to produce a total of 60,000 units over its life. The depreciation expense reported on the equipment for 2019 was $10,734. During 2020, the equipment was used to produce 9,000 units. At December 31, 2020, the book value of the equipment was $57,466. ABC Company is using the units-of-production depreciation method to depreciate the equipment. Calculate...

Nash Company uses special strapping equipment in its packaging business. The equipment was purchased in January...

Nash Company uses special strapping equipment in its packaging business. The equipment was purchased in January 2019 for $10,200,000 and had an estimated useful life of 8 years with no salvage value. At December 31, 2020, new technology was introduced that would accelerate the obsolescence of Nash’s equipment. Nash’s controller estimates that expected future net cash flows on the equipment will be $6,426,000 and that the fair value of the equipment is $5,712,000. Nash intends to continue using the equipment,...

Blossom Company uses special strapping equipment in its packaging business. The equipment was purchased in January...

Blossom Company uses special strapping equipment in its packaging business. The equipment was purchased in January 2019 for $6,000,000 and had an estimated useful life of 8 years with no salvage value. At December 31, 2020, new technology was introduced that would accelerate the obsolescence of Blossom's equipment. Blossom's controller estimates that expected future net cash flows on the equipment will be $3,750,000 and that the fair value of the equipment is $3,300,000. Blossom intends to continue using the equipment,...

Monte’s Coffee Company purchased packaging equipment on January 5, 2014, for $105,200. The equipment was expected...

Monte’s Coffee Company purchased packaging equipment on January 5, 2014, for $105,200. The equipment was expected to have a useful life of three years, or 20,000 operating hours, and a residual value of $7,200. The equipment was used for 8,520 hours during 2014, 6,940 hours in 2015, and 4,540 hours in 2016. Required: 1. Determine the amount of depreciation expense for the years ended December 31, 2014, 2015, and 2016 by (a) the straight-line method, (b) the units-of-output method, and...

Ayayai Company uses special strapping equipment in its packaging business. The equipment was purchased in January...

Ayayai Company uses special strapping equipment in its packaging business. The equipment was purchased in January 2016 for $11,600,000 and had an estimated useful life of 8 years with no salvage value. At December 31, 2017, new technology was introduced that would accelerate the obsolescence of Ayayai’s equipment. Ayayai’s controller estimates that expected future net cash flows on the equipment will be $ 7,308,000 and that the fair value of the equipment is $ 6,496,000. Ayayai intends to continue using the...

Dolphin Company uses special strapping equipment in its packaging business. The equipment was purchased in January...

Dolphin Company uses special strapping equipment in its packaging business. The equipment was purchased in January 2015 for $8,000,000 and had an estimated useful life of 8 years with no salvage value. At December 31, 2016, new technology was introduced that would accelerate the obsolescence of Dolphin’s equipment. Dolphin’s controller estimates that expected future net cash flows on the equipment will be $5,000,000 and that the fair value of the equipment is $4,400,000. Dolphin intends to continue using the equipment,...

Kingbird Company uses special strapping equipment in its packaging business. The equipment was purchased in January...

Kingbird Company uses special strapping equipment in its packaging business. The equipment was purchased in January 2016 for $12,400,000 and had an estimated useful life of 8 years with no salvage value. At December 31, 2017, new technology was introduced that would accelerate the obsolescence of Kingbird’s equipment. Kingbird’s controller estimates that expected future net cash flows on the equipment will be $7,812,000 and that the fair value of the equipment is $6,944,000. Kingbird intends to continue using the equipment,...

Q1 : Assume Wireless Link Inc. purchased a new piece of equipment on January 1, 2016,...

Q1 : Assume Wireless Link Inc. purchased a new piece of equipment on January 1, 2016, that cost $50，000. The estimated useful life is 8 years and estimated residual value is $2，400. If Wireless Link uses the straight-line method for depreciation, what is the asset's carrying amount at the end of 2017? Q2 : Assume Wireless Link Inc. purchased a new piece of equipment on January 1.2016, that cost $50,000. The estimated useful life is 8 years , and estimated...