Flip Company purchased equipment on January 1, 2011 for $90,000. It is estimated

Question

Flip Company purchased equipment on January 1, 2011 for $90,000. It is estimated that the equipment will have a $5,000 salvage value at the end of its 5-year useful life. It is also estimated that the equipment will produce 100,000 units over its 5-year life. Compute the amount depreciation expense for the year ended December 31, 2011, using the straight-line method depreciation. If 16,00 units of product are produced in 2011 and 24,000 units are produced in 2012, what is the book value of the equipment at December 31, 2012? The company uses the units-of-activity depreciation methid. If the company uses the double-declining-balance method of depreciation, what is the balance of the Accumulated Depreciation-Equipment account at December 31, 2013?

Explanation / Answer

(1) Straight line depreciation Depreciation expenses = (90000-5000)/5 = $17,000 (2) Units of activity depreciation method Depreciation expenses for 2011: 85000 x 16000/100000 = $13600 Depreciation expenses for 2012: 85000 x 24000/100000 = $20400 Book value at 31 Dec = 90000 - 13600 - 20400 = $56000 (3) Double declining balance method Double declining rate = 100%/5 x 2 = 40% Depreciation for 2011: 90000 x 40% = $36000 Depreciation for 2012: 36000 x 60% = $21600 Depreciation for 2013: $21600 x 60% = $12960 Balance of Acc Depreciation = 36000 + 21600 + 12960 = $70560 Hope this helps!

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