Nicole’s Getaway Spa (NGS) purchased a hydrotherapy tub system to add to the wel

Question

Nicole’s Getaway Spa (NGS) purchased a hydrotherapy tub system to add to the wellness programs at NGS. The machine was purchased at the beginning of the year at a cost of $10,000. The estimated useful life was five years and the residual value was $1,000. Assume that the estimated productive life of the machine is 10,000 hours. Expected annual production was year 1, 2,400 hours; year 2, 2,500 hours; year 3, 2,000 hours; year 4, 2,100 hours; and year 5, 1,000 hours.

Assume NGS sold the hydrotherapy tub system for $3,000 at the end of year 3. Prepare the journal entry to account for the disposal of this asset under the three different methods. (Do not round intermediate calculations. If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field. Round your final answers to the nearest dollar amount.)

1. Record the disposal of the hydrotherapy tub system for $3,000 in year 3 assuming depreciation was calculated using the straight line method.

2. Record the disposal of the hydrotherapy tub system for $3,000 in year 3 assuming depreciation was calculated using the units-of-production method.

3. Record the disposal of hydrotherapy tub system for $3,000 in year 3 assuming depreciation was calculated using the double-declining method.

2.

Assume NGS sold the hydrotherapy tub system for $3,000 at the end of year 3. Prepare the journal entry to account for the disposal of this asset under the three different methods. (Do not round intermediate calculations. If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field. Round your final answers to the nearest dollar amount.)

Required 1. Complete a depreciation schedule for each of the alternative methods. (Do not round intermediate calculations. Round your final answers to the nearest dollar amount.) a. Straight-line. epreciation Accumulate Expense Depreciation Book Value Year At Acquisition Year 1 Year 2 Year 3 Year 4 Year 5 b. Units-of-production preciation Accumulate Expense Depreciation Year At Acquisition Year 1 Year 2 Year 3 Year 4 Year 5 Book Value

Explanation / Answer

1)

Straight line depreciation = (10000 - 1000)/5= $1800 per year

Double declining rate

= 2 x straight line rate of depreciation

= 2 x (1/5)

= 2 x 20%

= 40%

Note: The accumulated depreciation cannot be greater than $9000. This is because the depreciable base of the asset = $10000 - $1000 = $9000

Unit of production method:

Rate of depreciation

= (cost - salvage value) / number of useful life in hours

= (10000 - 1000) / 10000

= $0.9/hour

2)

Year Depreciation expense Accumulated depreciation Book Value 1 $      1,800.00 $       1,800.00 $   8,200.00 2 $      1,800.00 $       3,600.00 $   6,400.00 3 $      1,800.00 $       5,400.00 $   4,600.00 4 $      1,800.00 $       7,200.00 $   2,800.00 5 $      1,800.00 $       9,000.00 $   1,000.00

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