On January 2, 2010, KJ Corporation acquired equipment for $260,000. The estimate

Question

On January 2, 2010, KJ Corporation acquired equipment for $260,000. The estimated life of the equipment is 5 years or 40,000 hours. The estimated residual value is $20,000. The equipment worked for 14,000 hrs in the first year, 10,000 hrs in the second year, 9,000 hrs in the third year, 4,000 hrs in the fourth year and 3,000 hrs in the fifth year. Using this information, answer the following. d. If the asset is depreciated using the straight line method, determine the book value of the asset at Dec 31 2012 (the end of the third year). e. If the asset is depreciated using the units of production method, calculate the depreciation expense at Dec 31, 2010 (the end of the first year) and at Dec 31, 2011 (the end of the second year). f. If the asset is depreciated using the double declining balance method, calculate the depreciation expense at Dec 31, 2011 (the end of the second year) and at Dec 31, 2012 (the end of the third year). g. If the asset is depreciated using the double declining balance method, determine the book value of the asset at Dec 31, 2013 (the end of the fourth year).

Explanation / Answer

Equipment initial price = 260000$
Duration of use= 5 years
Residual velue = 20000$
Part A:
If the asset is depreciated using the straight line method:
yearly dep= (260000-20000)/5 = 48000$
the book value of the asset at Dec 31 2012= 260000-3*48000=116000$
Part B:
If the asset is depreciated using the units of production method:
Hourly dep: (260000-20000) / (14000+10000+9000+4000+3000) = 6$
the depreciation expense at Dec 31, 2010=
260000-6*(14000)=176000$
at Dec 31, 2011:
260000-6*(14000+10000)=116000$
Part C:
If the asset is depreciated using the double declining balance method:
Depreciation Base=260000-20000=240000$
annual dep= (260000-20000)/5 = 48000$
Percentage dep in first year= 48000/240000 * 100 = 20%
twice the percentage= 40%
Now calculating the dep yearly:
1st year= 240000*40%=96000$
remaining dep= 240000-96000=144000
so, dep for second year= 144000*40%=57600$
remaining dep=144000-57600=86400$
so, dep for third year= 86400*40%=34560$
remaining dep=57600-34560=23040$
so, dep for fourth year= 23040*40%=9216$
So,
depreciation expense at Dec 31, 2011 (the end of the second year) =96000 + 57600=153000$
the book value of the asset at Dec 31, 2013 (the end of the fourth year)=
260000-(96000 + 57600+34560+9216)=63224$

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