Flip Company purchased equipment on July 1, 2011 for $90,000. It is estimated th
ID: 2503218 • Letter: F
Question
Flip Company purchased equipment on July 1, 2011 for $90,000. It is estimated that the equipment will have a $5,000 salvage value at the end of its 5-year useful life. It is also estimated that the equipment will produce 100,000 units over its 5-year life.
Instructions
Answer the following independent questions.
1. Compute the amount of depreciation expense for the year ended December 31, 2011, using the straight-line method of depreciation.
2. If 14,000 units of product are produced in 2011 and 26,000 units are produced in 2012, what is the book value of the equipment at December 31, 2012? The company uses the units-of-activity depreciation method.
3. If the company uses the double-declining-balance method of depreciation, what is the balance of the Accumulated Depreciation
Explanation / Answer
a.) Annual depreciation expense=(Cost- Residual Value)/Useful Life=(90000-5000)/5=$17,000
Depreciation expense for the year(only 6 months)= $17,000/2=$8,500
b.) Depreciation = No. of units produced*(Cost-Salvage Value)/Life in Number of Units=40000/100000*(90000-5000)=85000*.4=$34000
Book value of equipment = 90000-34000=$56000
c.) Annual depreciation% under straight line method = 17000/85000=20%
Depreciaiton % under this method=40%
Depreciation as of Dec2011= 85000*40%*6/12=$17000
Acc. Depreciation as of Dec 2012= 17000+(85000-17000)*40%=17000+27200=$44200
Acc. Depreciation as of Dec 2013= 44200+(85000-44200)*40%=$60520
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