John Wayne Corporation purchased a piece of equipment on April 1, 2009 for $600,
ID: 2435975 • Letter: J
Question
John Wayne Corporation purchased a piece of equipment on April 1, 2009 for $600,000. The equipment has a useful life of 5 years or 2,400,000 units of production, and no estimated salvage value. Compute the depreciation for 2009 and 2010 using the following methods: (a) straight-line, (b) units of production, and (c) double-declining-balance. Assume that the company’s fiscal year corresponds to the calendar year and that 360,000 and 520,000 units were produced in the respective years. Be sure to show all computations in the space provided.a) Straight-Line
2009
2010
b) Units of Production
2009
2010
c) Double-Declining Balance
2009
2010
d) Using the above calculations, if the company uses Units of Production depreciation method, journalize the depreciation entry as of December 31, 2009.
Explanation / Answer
a Straight Line Method : 2009 Cost - 600,000 Estimated Useful Life - 5 years Residual Value - 0 Depreciation for each year - 600,000 /5=120,000 For 2009 , it was used only for 9 months Hence , Depreciation = 120,000 * 9/12 = 90,000 2010 Depreciation Expense ; 600,000 / 5 =120,000 b Units of Production : 2009 : Cost - 600,000 Estimated production during its life - 2,400,000 Cost per Unit of Output - 600,000 / 2,400,000 = 0.25 Production during 2009 - 360,000 Depreciation : 360,000 * 0.25 = 90,000 Production during 2010 - 520,000 Depreciation : 520,000 * 0.25 = 130,000 c Double Declining Method 2009 - 600,000 * 0.40*9/12 = 180,000 2010 - (600,000 - 180,000 ) * 0.4 = 168,000 d Journal entry would be : Depreciation expense 90,000 Accumulated Depreciation 90,000
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