B. On January 1, 2012, Corona Company, a small machine-tool manufacturer, acquir

Question

B. On January 1, 2012, Corona Company, a small machine-tool manufacturer, acquired for $1,260,000 a piece of new industrial equipment. The new equipment was estimated to have a useful life of estimated to be $60,000. · years, and the residual value was . The com pany estimates that the new equipment can produce 12,000 units in its first year and 50,000 units over its life. It also estimates that production will decline by 1,000 units per year over the remaining useful life of the equipment. REQUIRED: Calculate the amount of depreciation expense and accumulated depreciation for each of the three years (2012 2014) using the following depreciation methods: ) Double declining balance ii) Sum-of-the-years -digit iit) Units of output 3 ½ marks 3 marks 3 ½ marks

Explanation / Answer

Calculate depreciation expenses and accumlated depreciation :

a) double decline balance :

straight line rate = 100/5=20%

Double decline rate = 20*2=40%

ii) Sum of year digit :

Sum of year = 5+4+3+2+1 = 15

Depreciable base = (1260000-60000) = 1200000

III) Units of output :

Dep rate = 1200000/50000 = 24 per unit

Year Depreciation exp Accumlated dep Book value at the end 2012 504000 504000 756000 2013 302400 806400 453600 2014 181440 987840 272160

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