P11-1 Depreciation Method The Winsey Company purchased equipment on January 2, 2

Question

P11-1 Depreciation Method The Winsey Company purchased equipment on January 2, 2010, for $700,000. The equipment has the following characteristics: Estimatesd service life 20 years Estimated residual value $50,000 100,000 hours 950,000 units of output During 2010 and 2011, the company used the machine for 4,500 and 5,500 hours respectively and purchased 40,000 and 60,000 units respectively. Compute he depreciation for 2010 and 2011 under each of the following methods: 5. Double-declining-balance 6. 150%-declining-balance 7. Compute the company

Explanation / Answer

1.) Straight-line:

($700,000 - $50,000) / 20 years =$32,500 per year


Depreciation: 2010 2011

$32,500 $32,500

2.) Hours worked:

($700,000 - $50,000) / 100000 years =$6.50 per year


Depreciation: 2010 = $6.50 x 4,500 hours = $29,250
2011 = $6.50 x 5,500 hours = $35,750

3.) Units of output:

($700,000 - $50,000) / 100000 years =$0.68 per unit


Depreciation: 2010 = $0.68 x 40,000 units = $27,200
2011 = $0.68 x 60,000 units = $40,800

4.) Sum-of-the-years'-digits:

SYD for 20 years = 20(21)/2=210

Depreciation: 2010 = 20/210 x ($700,000 - $50,000) = $61,905
2011 = 19/210 x ($700,000 - $50,000) = $58,810

5.) Double-declining balance:

Straight-line rate = 1/20 = 5%
Depreciation: 2010 = $700,000 x (2 x 5%) = $70,000
2011 = ($700,000 - $70,000) x (2 x 5%) = $63,000


6.) 150% declining balance:

Straight-line rate = 1/20 = 5%

Depreciation: 2010 = $700,000 x (1.5 x 5%) = $52,500
2011 = ($700,000 - $52,500) x (1.5 x 5%) = $48,563

7). Straight-line:

Return on total assets, 2010 = Net income - Total assets
= $100000-$32,500 / $700000-$32,500
= 10.1%

Return on total assets, 2011 = Net income -Total assets
= $100000-$32,500 / $700000-($32,500 + $32,500)
= 10.6%

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