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: 1. Single-line 2. Hours worked 3. Units of output 4. Sum-of-the-years-digits 5. Double-declining-balance 6. 150%-declining-balance 7. Compute the company’s return on assets (net income divided by average total assets, as discussed in chapter 6) for each method for 2010 and 2011, assuming that income before depreciation is$100,000. For simplicity, use ending assets, and ignore interest, income taxes , and other assets.

Explanation / Answer

x.P5 frame="VOID" rules="NONE" border="0" cellspacing="0" cols="2"> Working Hours Cost 700,000 Salvage Value 50,000 Estimated Working Hours 100,000.00 Depreciation Per hours 6.50 Hours Used in 2010 4,500.00 Depreciation Expense 29,250.00 Cost 700,000 Salvage Value 50,000 Estimated Working Hours 100,000.00 Depreciation Per hours 6.50 Hours Used in 2011 5,500.00 Depreciation Expense 35,750.00 Net Income in 2010 70750 Return on asset 0.101 Net Income in 2011 64250 Return on asset 0.092 Sum-of-the-years-digits Useful Life 20 SUM of years 210 Cost 700,000 Salvage Value 50,000 Depreciation in 2010 61904.76 Net Income in 2010 38095.24 Return on asset 0.054 Cost 700,000 Salvage Value 50,000 Depreciation in 2011 58809.52 Net Income in 2011 41190.48 Return on asset 0.059

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