Question Help General Medical Center bought equipment on January 2 for $27,000.
ID: 2412105 • Letter: Q
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Question Help General Medical Center bought equipment on January 2 for $27,000. The equipment was expected to nemain in service for four years and to perfom 800 operations Atthe endofthe eqipment's useful life, General estimatestatts residual wg be $3.000 The eopment performed80operatosthe first y6 240 the seco year, 320 the third year, and 180 the fourth year Read the reauirements MyLal Requirement 1. Prepare a schedule of depreciation expense per year for the equipment under the three depreciation methods. After two years under double-decining balance depreciation, the company switched to the straightHline method 0 Main Units ofDouble-Declining Enter any number in the edit fields and then continue to the next question PowerPoint Chacter 10 20 3 5 commandoption option commandExplanation / Answer
Straight Line
A
Cost
$ 27,000.00
B
Residual Value
$ 3,000.00
C=A - B
Depreciable base
$ 24,000.00
D
Life [in years]
4
E=C/D
Annual SLM depreciation
$ 6,000.00
Year
Book Value
Depreciation expense
Ending Book Value
Accumulated Depreciation
1
$ 27,000.00
$ 6,000.00
$ 21,000.00
$ 6,000.00
2
$ 21,000.00
$ 6,000.00
$ 15,000.00
$ 12,000.00
3
$ 15,000.00
$ 6,000.00
$ 9,000.00
$ 18,000.00
4
$ 9,000.00
$ 6,000.00
$ 3,000.00
$ 24,000.00
Units Of Production
A
Cost
$ 27,000.00
B
Residual Value
$ 3,000.00
C=A - B
Depreciable base
$ 24,000.00
D
Production
800
E
Depreciation per Unit
30
Year
Book Value
Production
Depreciation expense
Ending Book Value
Accumulated Depreciation
1
$ 27,000.00
80
$ 2,400.00
$ 24,600.00
$ 2,400.00
2
$ 24,600.00
240
$ 7,200.00
$ 17,400.00
$ 9,600.00
3
$ 17,400.00
320
$ 9,600.00
$ 7,800.00
$ 19,200.00
4
$ 7,800.00
160
$ 4,800.00
$ 3,000.00
$ 24,000.00
Double Declining Method
A
Cost
$ 27,000.00
B
Residual Value
$ 3,000.00
C=A - B
Depreciable base
$ 24,000.00
D
Life [in years]
4
E=C/D
Annual SLM depreciation
$ 6,000.00
F=E/C
SLM Rate
25.00%
G=F x 2
DDB Rate
50.00%
Change of depreciation method to Straight Line
Straight Line
A
WDV
$ 6,750.00
B
Residual Value
$ 3,000.00
C=A - B
Depreciable base
$ 3,750.00
D
Life [in years]
2
E=C/D
Annual SLM depreciation
$ 1,875.00
Year
Beginning Book Value
Depreciation rate
Depreciation expense
Ending Book Value
Accumulated Depreciation
1
$ 27,000.00
50.00%
13500
$ 13,500.00
13500
2
$ 13,500.00
50.00%
6750
$ 6,750.00
20250
Change in Method to Straight Line
3
$ 6,750.00
1875
$ 4,875.00
22125
4
$ 4,875.00
1875
$ 3,000.00
24000
Part 1
Schedule of Depreciation
Year
Straight Line
Units of Production
Double Declining Method
1
6000
2400
13500
2
6000
7200
6750
3
6000
9600
1875
4
6000
4800
1875
Part 2
Units of Production method most closely track the wear and tear of the equipment.
Part 3
Double declining method should be preferred for Income tax Purposes.
Double declining method gives highest amount of depreciation in the first year that means it gives highest amount of expenses to be recorded in income statement. High expense will reduce profits and ultimately final liability of tax will be less in comparison to other alternatives such as Straight line and Units of Production method.
Straight Line
A
Cost
$ 27,000.00
B
Residual Value
$ 3,000.00
C=A - B
Depreciable base
$ 24,000.00
D
Life [in years]
4
E=C/D
Annual SLM depreciation
$ 6,000.00
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