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.

3. The following amounts were forecast for year 3: Sales Revenues $47,000; Cost of Goods Sold $37,000; Other Operating Expenses $4,700; and Interest Expense $900. Create an income statement for year 3 for each of the different depreciation methods, ending at Income before Income Tax Expense. (Don't forget to include a loss or gain on disposal for each method.). (Do not round intermediate calculations. Round your answers to the nearest dollar amount.) NICOLE'S GETAWAY SPA Forecasted) Income Statement For the Year Ended Year 3 Straight Line Units-of- Production Double- Declining Balance Operating Expenses: Total Operating Expenses

Explanation / Answer

The machine was purchased at the beginning of the year at a cost of $10,000.

The estimated useful life was five years

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.

Now first of all we will calculate Depriciation as per three method as follow

(1)

StraightLine

Depriciation

=Cost/ Life of the assets

=10,000-1000/ 5 year

= 1800 each year

(2)

Units-of-production for year 3

= Cost * Units of production for the year/ Total production during the life

= 9,000*2000/10000

=1800

(3)

Double declining

In this method rate is double than Stright line method

So 20 % in SLM then 40% in DDM

So 40% in DDM

Now we will make the estimated income statement

nicole’s Getaway Spa

Forcasted incomestatement

for the year ended year3

Year Opeaning
WDV Depri
@ 40% Clg WDV 1 9000 3600 5400 2 5400 2160 3240 3 3240 1296 1944 4 1944 777.6 1166.4 5 1166.4 466.56 699.84

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