Problem 2 (25 points) On January 1,2017, Tracey Designs, Inc., purchased a compu
ID: 2515286 • Letter: P
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Problem 2 (25 points) On January 1,2017, Tracey Designs, Inc., purchased a computerized bluep that will assist in the design and display of plans for factory layouts. The cos printer was $22,500 and i value at the end of the fourth year is $2.500. The printer is expected to last for 8.000 hours. It was used for 1,200 hours in 2017 and 1,800 hours in 2018. t of the ts expected useful life is four (4) y The expected salvage For the years 2017 and 2018, compute the depreciation expense that would go on the income statement and compute the book value that would go on the balance sheet, using the following methods of depreciation. Show your work below and on the next page and put your answers on the Depreciation Answer Sheet at the bottom of the next page. A. Straight-Line method B. Units-of-Production method C. Double-Declining-Balance methodExplanation / Answer
Solution:
Part A. Depreciation Expenses For year 2017 and 2018 Under Straight line method
Straight Line Method
Straight line method is a method of calculating depreciation of an asset.
Under this method depreciation is calculated by dividing depreciable asset value by estimated useful life.
Depreciable Asset Value = Cost of Asset – Salvage Value
In this method, depreciation for each year remains same.
Mathematically,
Annual Depreciation = (Cost of Asset – Salvage Value) / Useful life
Annual Depreciation = (Cost of Asset $22,500 – Salvage Value $2,500) / Useful life 4
= $5,000
Depreciation Schedule (Straight Line Method)
Year
Depreciation Expense
Accumulated Depreciation
Ending Book Value
Jan.1, 2017
$22,500
2017
$5,000
$5,000
$17,500
2018
$5,000
$10,000
$12,500
Depreciation Expenses for 2017 = $5,000
Depreciation Expenses for 2018 = $5,000
Part B. Depreciation Expenses For year 2017 and 2018 Under Units of Production Method
Computation of Depreciation (Using Unit of Production Method)
Under the Units of Production method of depreciation, depreciation is charged according to the actual usage of the asset. Higher depreciation is charged when there is higher activity and less is charged when there is low level of operation. Zero depreciation is charged when the asset is idle for the whole period.
Estimated production Units during life of Asset = 8,000 Hours
Asset’s Depreciable Cost = Cost of Asset – Salvage Value = $22,500 – 2500 = $20,000
Under the units of production method, the machine's depreciable cost of $20,000 is divided by the expected use of assets 8,000 Hours, resulting in depreciation rate of $2.50 per hour.
Depreciation Schedule under Units of Production Method
Year
Hours Used
Depreciation Cost / Unit
Annual Depreciation Expenses
Accumulated Depreciation
Book Value
Jan.1, 2017
$22,500
2017
1200
$2.50
$3,000
$3,000
$19,500
2018
1800
$2.50
$4,500
$7,500
$15,000
Depreciation Expenses for 2017 = $3,000
Depreciation Expenses for 2018 = $4,500
Part C. Depreciation Expenses For year 2017 and 2018 Under Double Declining Method
Declining-balance method at double the straight-line rate
It is a method of depreciation used by the companies when they want to quickly depreciate an asset.
The asset will depreciate much faster under this method than straight-line because we double the percentage that would be depreciated each year under straight-line.
Salvage value is not subtracted from Cost of Asset when depreciation is calculated by using this method.
The formula for double declining balance is:
Annual depreciation = Book Value * 100% / life * 2
Calculate the percentage that should be used first.
Percentage = 100% / Useful Life x 2 = 100% / 4 x 2 = 50%
Once the percentage is calculated, it is the same for the rest of the asset’s life.
Year
DDB Depreciation for the period
End of Period
Beginning of period book value
Depreciation Rate
Depreciation Expenses
Accumulated Depreciation
Book Value
Jan.1, 2017
22,500
2017
22,500
50.00%
11,250
11,250
11,250
2018
11,250
50.00%
5,625
16,875
5,625
Depreciation Expenses for 2017 = $11,250
Depreciation Expenses for 2018 = $5,625
Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you
Depreciation Schedule (Straight Line Method)
Year
Depreciation Expense
Accumulated Depreciation
Ending Book Value
Jan.1, 2017
$22,500
2017
$5,000
$5,000
$17,500
2018
$5,000
$10,000
$12,500
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