This Question: 7 pts 8 of 8 (0 complete) This Test:59 pts possible At the beginn
ID: 2577710 • Letter: T
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This Question: 7 pts 8 of 8 (0 complete) This Test:59 pts possible At the beginning of last year, Brentwood Corporation purchased a piece of heavy equipment for $88,000. The equipment hasa life of five years or 100,000 hours. The estimated residual value is $8,000. Bremond used the equipment for 19,000 hours last year and 22,000 hours this year. Depreciation expense for year two using double-declining-balance (DDB) and units-of-production (UOP) methods would be as follows: (Carry all rates to two decimal places, XX) DDB UOP OA. $19.200 $19.360 O B. $19,200 $17,600 O C. $21,120 $19,360 OD. $21,120 $17,600Explanation / Answer
A B C D E F G H
1
2 Activity Method:
3 Using the following data:
4 Investment in machine (Initial Book Value) $88,000
5 Salvage value $8,000
6 Depreciable amount =Beginning value - Salvage Value
7 $80,000.00
8 Depreciation cost per unit of service can be calculated as follows:
9 Depreciable amount $80,000.00
10 Total hours of service 100000 hrs
11
12 Depreciation cost per unit =Depreciable Cost / Total Units
13 $0.80
14
15 Year Units of Services Depreciation Depreciation
16 Per year Per Hours Expense
17
18 1 19000 $0.80 $15,200.00
19 2 22000 $0.80 $17,600.00
20
21 Hence depreciation expense in year 2 is $17,600.00
22
23
24 Double declining Balance Method:
25 Cost of Machine $88,000
26 Salvage Value $8,000
27 Useful Life 5 years
28 Per year depreciation under straight line 20.00%
29 % depreciation under double declining 40%
30 Under double declining method beginning net book value is used to calculate depreciation for a period and salvage value is ignored.
31 The depreciation stops when net book value equals the salvage value.
32
33 Year Beginning Net x Double declining = Depreciation
34 Book Value rate Expense
35
36 1 $88,000 x 40% = $35,200.00
37 2 $52,800 x 40% = $21,120.00
38
39 Hence depreciation expense in year 2 using double declining method $21,120.00
40
41 Thus option d is correct.
42
43
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