Anslaw Electronics purchased packaging equipment for $600,000 cash on July 1, 20

Question

Anslaw Electronics purchased packaging equipment for $600,000 cash on July 1, 2014. Management estimates the equipment can package 800,000 inventory units and will be productive for 5 years. Its salvage value is estimated at $50,000. During 2014, the equipment packaged 130,000 units, with another 140,000 units in 2015.

Instructions: Compute the annual depreciation expense for 2014 and 2015, and book value at December 31, 2015, under the straight-line method and the units of production method .

        2014 depreciation = $_______________

        2015 depreciation = $_______________

        December 31, 2015 book value = $_______________.

Explanation / Answer

Annual depreciation = ($600,000 - $50,000)/5 yrs = $110,000

Depreciation for 2014 = $110,000/2 = $55,000 (for 6 months)
Depreciation for 2015 = $110,000 (for a full year)
Accumulated depreciation at December 31, 2015 = $165,000

Book value at December 31, 2015= $600,000 - $165,000 = $435,000

Units of production method :
Depreciation per unit = ($600,000 - $50,000)/800,000 units = $0.6875 per unit

Depreciation for 2014 = 130,000 units x $0.6875 = $89,375
Depreciation for 2015 = 140,000 units x $0.6875 = $96,250
Accumulated depreciation at Dec 31, 2015 = $185,625

Book value depreciation = $600,000 - $185,625 = $414,375

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