E9-7 Computing Depreciation under Alternative Methods [LO 9-3] Tails Corporation
ID: 2565302 • Letter: E
Question
E9-7 Computing Depreciation under Alternative Methods [LO 9-3] Tails Corporation purchased and installed electronic payment equipment at its drive-in restaurants in San Marcos, TX, at a cost of $37,800. The equipment has an estimated residual value of $2,400. The equipment is expected to process 261,000 payments over its three-year useful life. Per year, expected payment transactions are 62,640, year 1; 143,550, year 2, and 54,810, year 3 Required Complete a depreciation schedule for each of the alternative methods. (Do not round intermediate calculations.) 1. Straight-line. Income Statement Balance Sheet Depreciation Expense Accumulated Depreciation Book Value Year Cost At acquisition 2. Units-of-production. Income Statement Balance Sheet Accumulated Depreciation Expense Year Cost Depreciation Book Value At acquisitionExplanation / Answer
1. Under straight line method Depreciation = (Cost - Scrape ) / Life = ( 37800 - 2400 ) / 3 years = 11800 per year
Book value = cost - Accumulated Depreciation.
Accumulated depreciation is the result of adding all depreciations to that date.
Cost column of the asset always show same cost value, since depreciation is accumulated. This is a common feature for all the methods of depreciation where cost of the asset i.e first cost always remain constant. Change comes in book value.
2. Units of production method
Depreciation = (37800 - 2400 ) / 261000 = 0.13563218 per unit. Now multiplying each year production with this per unit depreciation rate gives the annual depreciation.
3. Double declining method
Rate of depreciation = 1/ life * 200 = 66.67%.........but for better results we use 2/3 fraction instead of 66.67%
Thus each year depreciation = 2/3 of beginning book value.
Year Dep Exp Cost Acc Dep Book val At acquisition 37800 1 11800 37800 11800 26000 2 11800 37800 23600 14200 3 11800 37800 35400 2400Related Questions
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