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× / Review Assignments 9 Work-Google Chrome lucation.com/hm.tpx nect cancel nows what is correct and incorrect for the work you have completed so far. e work you have done so tar s corect you may not have completed everything value 10.00 points Tails Corporation purchased and installed electronic payment equipment at its drive-in restaurants in San Marcos, TX, at a cost of $45,900. The equipment has an estimated residual value of $3,600. The equipment is expected to process 269,000 payments over its three-year useful life. Per year, expected payment transactions are 64,560, year 1; 147,950, year 2, and 56,490, year 3 Required: Complete a depreciation schedule for each of the alternative methods. (Do not round intermediate calculations.)

Explanation / Answer

Solution:

Part 2 --- Unit 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 payments processing during life of equipment = 269,000 payments

Machine’s Depreciable Cost = Cost of Asset – Salvage Value = $45,900 - $3,600 = $42,300

Year 1 Depreciation Expense = Expected Payment Transaction x Depreciation Rate

= 64,560 * $42,300 / 269,000

= $10,152

Year 2 Depreciation Expense = Expected Payment Transaction x Depreciation Rate

= 147,950 * $42,300 / 269,000

= $23,265

Year 3 Depreciation Expense = Expected Payment Transaction x Depreciation Rate

= 56,490 * $42,300 / 269,000

= $8,883

Income Statement

Balance Sheet

Year

Depreciation Expense

(as calculated above)

Cost

Accumulated Depreciation

Book Value

at acquisition

0

$45,900

0

$45,900

1

$10,152

$45,900

10152

$35,748

2

$23,265

$45,900

33417

(10152 + 23265)

$12,483

3

$8,883

$45,900

42300

(33417 + 8883)

$3,600

Part 3 - 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

Once the percentage is calculated, it is the same for the rest of the asset’s life.

Depreciation Percentage = 100% / 3 x 2 = 66.6667%

Year 1 Depreciation Expense = Book Value at beginning of Year x Depreciation Percentage

= $45,900 * 66.6667%

= $30,600

Year 2 Depreciation Expense = Book Value at beginning of Year x Depreciation Percentage

= $15,300 * 66.6667%

= $10,200

Year 3 Depreciation Expense = Book Value at beginning of Year x Depreciation Percentage

= $5,100 * 66.6667%

= $3,400

Since the Residual Value of the Equipment is $3,600. The depreciation is restricted to the residual value i.e. Depreciable amount.

Depreciation Amount = 45,900 – 3,600 = $42,300

Accumulated Depreciation at the end of year 2 = $40,800

It means the equipment is depreciation to the value $40,800

Depreciation Expense for Year 3 = Depreciable Amount – Accumulated Depreciation at the end of year 2

= 42,300 – 40,800

= $1,500

Income Statement

Balance Sheet

Year

Depreciation Expense

Cost

Accumulated Depreciation

Book Value

at acquisition

0

$45,900

0

$45,900

1

$30,600

$45,900

$30,600

$15,300

2

$10,200

$45,900

$40,800

$5,100

3

$1,500

(Refer Note Above)

$45,900

$42,300

$3,600

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

Income Statement

Balance Sheet

Year

Depreciation Expense

(as calculated above)

Cost

Accumulated Depreciation

Book Value

at acquisition

0

$45,900

0

$45,900

1

$10,152

$45,900

10152

$35,748

2

$23,265

$45,900

33417

(10152 + 23265)

$12,483

3

$8,883

$45,900

42300

(33417 + 8883)

$3,600

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