Papa\'s fried chicken bought equipment on january 2, 2013 for $39,000. The equip
ID: 2450966 • Letter: P
Question
Papa's fried chicken bought equipment on january 2, 2013 for $39,000. The equipment was expected to remain in service for four years and to perform 11,000 fry jobs. At the end of the equipment's useful life, Papa's estimates that its residual value will be $6000. The equipment performed 1100 fry jobs in the first year.
Calculate the first year depreciation expense and book value for equipment under each of the three depreciation methods. Remember the three methods are straight-line, units of production and double declining balance. Show your calculations and label the method.
Explanation / Answer
a)Depreciation per year under Straight line method = (cost -residual life)/useful life in years
= (39000 - 6000 ) / 4
= 33000 / 4
= $ 8250
Book value = 39000 - 8250 =$ 30750
b)Depreciation under units of production method = (cost -residual life) /useful life in fry jobs
= (39000 - 6000) / 11000
= 33000 /11000
= $ 3 per fry jobs
Depreciation for first year = 3 * 1100 =$ 3300
Book value = 39000 - 3300 =$ 35700
c)Double declining rate = 2/ useful life
= 2/ 4 = .50 or50%
First year depreciation =cost *rate
= 39000 * .50
= $ 19500
Book value =39000 - 19500 =$ 19500
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