NEED SOLUTION ON EXCEL ALONG WITH THE FORMULAS VIEW On January1, Alexandra Compa
ID: 2398233 • Letter: N
Question
NEED SOLUTION ON EXCEL ALONG WITH THE FORMULAS VIEW
On January1, Alexandra Company purchased new equipmentto produce widgets Cost of equipment Estimated useful life Estimated salvage value Estimated widgets to be produced in first year $2,000,000 5 years $60,000 12,000 Due to falling demand, production of widgets will decrease by 1,000 peryear. The following depreciation methods maybe used: Straight Line Double Declining Balance Sum of the years digits Units of Output Compute depreciation expense and accumulated depreciation using all4 methods for 2011, 2012, and 2013 What depreciation method that would result in the highest net income in 2013 Compute the book value of the equipmentat 12/31/2013 undereach depreciation method. Selectthe depreciation method that closely aligns with the actual deterioration of the equipment a. b. c. d.Explanation / Answer
Answer to a:
Calculation of depreciation per year under Straight Line Method (SLM):
*Formula = (Cost of equipment - salvage value) / Useful life
Depreciation for the year 2011 = ($2,000,000 - $60,000) / 5 = $388,000
Depreciation for the year 2012 = ($2,000,000 - $60,000) / 5 = $388,000
Depreciation for the year 2013 = ($2,000,000 - $60,000) / 5 = $388,000
Accumulated depreciation at the end of the year 2013 = $388.000 + $388,000 + $388,000 = $1,164,000
Calculation of depreciation per year under Double declining balance method:
Calculation of SLM rate = Depreciation per year / (Cost - Salvage value)
= $ 388,000 / ($2,000,000 - $60,000) = 0.2 or 20%
Accumulated depreciation at the end of the year 2013 = $800,000 + $480,000 + $288,000 = $1,568,000
Calculation of depreciation per year under Sum of Years digits method:
Depreciation per year under this method = Net book value at the beginning of the year X Applicable percentage
Applicable percentage = Number of years of estimated life remaining at the beginning of the year / SYD
SYD = n(n+1) / 2 , where n is estimated life of the asset,
= 5(5+1) / 2 = 15
Accumulated depreciation at the end of the year 2013 = $646,602 + $517,398 $388,000 = $1,552,000
Calculation of depreciation per year under Unit of output method:
Total estimated number of widgets to be produced = 12,000+11,000+10,000+9,000+8,000 = 50.000 units
Depreciation per unit = Depreciable cost / Total no. of units to be produced = $1,940,000 / 50,000 = $38.8
Depreciation for the year 2011 = 12,000 units X $38.8 = $465,600
Depreciation for the year 2012 = 11,000 units X $38.8 = $426,800
Depreciation for the year 2013 = 10,000 units X $38.8 = $388,000
Accumulated depreciation at the end of the year 2013 = $465,600 + $426,800 + $388,000 = $1,280,400
Answer to b:
Double declining balance depreciation method would result in high net income in the year 2013 because of the lowest depreciation ($288,000) than the depreciation calculated under other methods.
Answer to C:
Calculation of net book value at the end of the year 2013 i.e on 12/31/2013:
*Net book value at the end of year 2013 = Cost - Accumuated depreciation until 2013.
Under Straight line method = $2,000,000 - $1,164,000 = $836,000
Under Double declining balance method = $2,000,000 - $1,568,000 = $432,000
Under Sum of years digit method = $2,000,000 - $1,552,000 = $448,000
Under Units of output method = $2,000,000 - $1,280,400 = $719,600
Answer to d:
Based on generally accepted accounting principles, you should select the method that best matches the depreciation expense to the revenue the asset helps to generate. In this case , i would go with units of output method to match the depreciation expense with correct revenue generated by it.
Year Net book value at the beginning of the year Deprecaition= 2 X SLM rate X Net book value Net book value at the end of the year 2011 $2,000,000 $800,000 $1,200,000 2012 $1,200,000 $480,000 $720,000 2013 $720,000 $288,000 $432,000Related Questions
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