On January 4, 2009, Congo Co. purchased a piece of equipment for $85,000. The eq

Question

On January 4, 2009, Congo Co. purchased a piece of equipment for $85,000. The equipment had an estimated salvage value of $10,000 and an expected life of eight years or 150,000 machine hours. Congo depreciates its assets to the nearest whole month and has a calendar year end. If Congo uses the straight-line depreciation method, what will the asset’s book value be at December 31, 2011? If Congo uses the units-of-production (output) method and operated the machine for 28,000 hours in 2009, how much depreciation expense will Congo record (round to the nearest dollar)?

Explanation / Answer

Nearest Whole Month in Straight line method

Using this method, assets purchased in the first half of the month (15th) are considered to be owned for the whole month and assets purchased in the second half of the month are not considered to be owned until the following month.

So, For 2009 (Jan 2009 to Dec 2009) Year whole 12 month will be considered for depreciation purpose

Deprecition for 2009= ($85,000-$10,000)*1/8 =$9,375

Deprecition for 2010= ($85,000-$10,000)*1/8 =$9,375

Deprecition for 2011= ($85,000-$10,000)*1/8 =$9,375

Asset Book value at Dec 31,2011 will be = ($85,000-$9,375-$9,375-$9,375)=$56,875

In case of units of production method depreciation will be = ($85,000-$10,000)*(26000/150,000)=$13,000

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.