Use the following to answer questions 5-15 JMM Property Management purchased a f

Question

Use the following to answer questions 5-15 JMM Property Management purchased a fleet of new mowers for an acquisition cost of $194,800. The company estimates the equipment will have a residual value of $31,000 when they are done using the mowers at the end of four years or about 182,000 machine hours. Prepare a depreciation schedule for four years using the following methods (straight-line and declining balance) Straight-line: Year Depreciation Expense Accumulated Depreciation Net Book Value At acquisition 4

Explanation / Answer

CALCULATION OF THE DEPRECIATION AS PER STRAIGHT LINE METHOD Purchase Cost of Equipment $            1,94,800.00 Less: Salvage Value $                31,000.00 Net Value for Depreciation $            1,63,800.00 Usefule life of the Assets 4 years Depreciation per year = Value for Depreciation / 4 years =                    40,950.00 YEAR Depreciation Expenses Accumulated Depreciation Net Book Value At Acquisition     1,94,800.00 1                                                                                                            40,950.00                    40,950.00     1,53,850.00 2                                                                                                            40,950.00                    81,900.00     1,12,900.00 3                                                                                                            40,950.00                1,22,850.00         71,950.00 4                                                                                                            40,950.00                1,63,800.00         31,000.00 CALCULATION OF THE DEPRECIATION AS PER SUM OF 160% DECLINE METHOD Purchase Cost of Equipment $            1,94,800.00 Useful Life = 4 years Depreciation per year = $                48,700.00 (Purchase price / Useful life) Rate of Depreciation = 0.25 or 25% (Depreication / Purchase price ) Double decline deprection rate = 25% * 1.60 = 40.0% YEAR Depreciation Expenses Accumulated Depreciation Net Book Value At Acquisition     1,94,800.00 1                                                                                                            77,920.00                    77,920.00     1,16,880.00 2                                                                                                            46,752.00                1,24,672.00         70,128.00 3                                                                                                            28,051.20                1,52,723.20         42,076.80 4                                                                                                            16,830.72                1,69,553.92         25,246.08 CALCULATION OF THE DEPRECIATION AS PER ACTIVITY METHOD UNITS OF OUTPUT 2017 Purchase Cost of Equipment $            1,94,800.00 Less: Salvage Value $                31,000.00 Net Value for Depreciation $            1,63,800.00 Expected to produce units                      1,82,000 Units Depreciation per unit =                               0.90 Per Unit ($ 163,800 / 182,000 Units) Dpreciation Book Value $ 1,94,800.00 Depreciation for Year 1 = (49800 units * $ 0.90) $                44,820.00 $ 1,49,980.00 Depreciation for Year 2 = (51,200 units * $ 0.90) $                46,080.00 $ 1,03,900.00 Depreciation for Year 3 = (41,650 units * $ 0.90) $                37,485.00 $     66,415.00 Depreciation for Year 4 = (39,350 units * $ 0.90) $                35,415.00 $     31,000.00 Depreciation Expenses for the year 3 = $                37,485.00 Book Value at the year end 3 = $                66,415.00

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