Straight-Line and Units-of-Production Methods Assume that Sample Company purchas
ID: 2573747 • Letter: S
Question
Straight-Line and Units-of-Production Methods
Assume that Sample Company purchased factory equipment on January 1, 2017, for $55,000. The equipment has an estimated life of five years and an estimated residual value of $5,500. Sample's accountant is considering whether to use the straight-line or the units-of-production method to depreciate the asset. Because the company is beginning a new production process, the equipment will be used to produce 10,000 units in 2017, but production subsequent to 2017 will increase by 10,000 units each year.
Required:
1. Calculate the depreciation expense, accumulated depreciation, and book value of the equipment under both methods for each of the five years of its life. Enter all amounts as positive values.
Straight-line method:
Units-of-production method:
2. In this exercise, The units of production method results in a depreciation pattern opposite to which depreciation method?
Annual Accumulated Book Year Depreciation Depreciation Value 2017 $ $ $ 2018 2019 2020 2021Explanation / Answer
Calculation of the depreciation expense, accumulated depreciation, and book value of the equipment under Straight line method Year Annual Depreciation Accumulated Depreciation Book Value 2017 $9,900 $9,900 $45,100 2018 $9,900 $19,800 $35,200 2019 $9,900 $29,700 $25,300 2020 $9,900 $39,600 $15,400 2021 $9,900 $49,500 $5,500 Depreciation per year using Straight line method = (Cost - residual value)/Estimated life of equipment Depreciation per year using Straight line method = ($55000-$5500)/5 years = $9900 Calculation of the depreciation expense, accumulated depreciation, and book value of the equipment under Units of production method Year Annual Depreciation Accumulated Depreciation Book Value 2017 $3,300 $3,300 $51,700 2018 $6,600 $9,900 $45,100 2019 $9,900 $19,800 $35,200 2020 $13,200 $33,000 $22,000 2021 $16,500 $49,500 $5,500 Depreciation per unit = (Cost - residual value) / Estimated production during life of equipment Estimated production during life of equipment = 10000 + 20000 + 30000 + 40000 + 50000 = 150000 units Depreciation per unit = ($55000 - $5500) / 150000 units = $0.33 per unit In this exercise, The units of production method results in a depreciation pattern opposite to double declining balance method. In DDB method , depreciation expense reduces with each passing year which is exactly opposite to what we calculated in Units of production method above.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.