2. XYZ company purchased an equipment on January 1, 2013 for $600,000. The machi

Question

2. XYZ company purchased an equipment on January 1, 2013 for $600,000. The machine has a useful life of 10 years and an estimated salvage value of $50.000. The machine is expected to produce 3,000,000 units during its life. During 2013, the company produced 800,000 units. And during 2014, the company produced 650,000 units. Required a) What should XYZ company record as depreciation expense as of December 31, 2013 and December 31, 2014 if they select to use the straight-line depreciation method? What is the book value of the machine as of the end of 2014? 2 2 ue a) [(600,000-50,000)140: 55,000 for 2013 and 2014 usebal hee BV (as of the end of 2014) 600,000-110,000 490,000 b) What should XYZ company record as depreciation expense as of December 31, 2013 and December 31, 2014 if they select to use the unit-of-production depreciation method? What is the book value of the machine as of the end of 2014? /ho uce b) [(600,000-50,000)]/3,000,000 0.183 2013 809,000 x 0.183 146,400/2014650,000 x 0.183 -118,950 BV (as of the end of 2014) 600,000-146,400-118,950 334,650 2

Explanation / Answer

Req a: Cost of Equipment: $ 600,000 Salvaage value: $ 50,000 Life: 10 years Depreciable amoutnt: Cost-salvage value 600,000 -50,000 = $550,000 Annual depreciation: Depreciable amaount/ Life = 550,000 /10 = $55,000 Depreciation for 2013: $55,000 Depreciation fr 2014: $55,000 Book value as on Dec 31, 2014: Cost of Equipment 600,000 Less: Depreciation for 2013 55,000 LesS: Depreciation for 2014 55,000 Book value as on Dec 31, 2014: 490,000 Req B: Depreciable amount: $ 550,000 Life in units produced: 3000,000 units Depreciation per unit: Depreciable amouont/ Life = 550,000 /3000,000 = 0.183 per unit Depreciation for 2013 (800,000 units @0.183) 146400 Depreciation for 2014 (650,000 units @0.183): 118950 Book value as on Dec 31, 2014: Cost of Equipment 600,000 Less: Depreciation for 2013 146400 LesS: Depreciation for 2014 118950 Book value as on Dec 31, 2014: 334,650

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