Thomas company purchased equipment for $760,000 cash on january 1,2014. The esti

Question

Thomas company purchased equipment for $760,000 cash on january 1,2014. The estimated life is 5 years or 1,000,000 units; salvage value is estimated at $60,000. Actual activity was 180,000 units in 2014, and 200,000 units in 2015.

Instructions: Compute the annual depreciation expense for 2014 and 2015, and book value at december 31, 2015, under the following depreciation methods: (a) units of activity, (b) straight line, and (c) double declining balance.

(a) Units of Activity

2014 depreciation = $

2015 depreciation = $

12/31/15 book value = $

(b) Straight line

2014 depreciation = $

2015 depreciation = $

12/31/15 book value = $

(c) Double declining balance

2014 depreciation = $

2015 depreciation = $

12/31/15 book value = $

Explanation / Answer

Answer a. Units of Activity Depreciation Per Unit = ($760,000 (Cost) - $60,000 (Salvage Value)) / 1,000,000 Units Depreciation Per Unit = $0.70 per Unit Date Units Produced Dep. Per Unit Depreciation Expenses Book Value 1-Jan-14                          -                       0.70                         -            760,000 31-Dec-14              180,000                     0.70              126,000          634,000 31-Dec-15              200,000                     0.70              140,000          494,000 2014 depreciation = $126,000 2015 depreciation = $140,000 12/31/15 book value = $494,000 Answer b. Straight Line Depreciaion per Annum = ($760,000 (Cost) - $60,000 (Salvage Value)) / 5 Years Depreciaion per Annum = $140,000 per annum Date Depreciation Expenses Book Value 1-Jan-14                          -                760,000 31-Dec-14              140,000              620,000 31-Dec-15              140,000              480,000 2014 depreciation = $140,000 2015 depreciation = $140,000 12/31/15 book value = $480,000 Answer c. Double Declining Method Rate of Depreciation under DDBM = 2 X 20% (Rate of Dep. Under Straight Line) Rate of Depreciation under DDBM = 40% Date Depreciation Expenses Book Value 1-Jan-14                          -                760,000 31-Dec-14              304,000              456,000 31-Dec-15              182,400              273,600 2014 depreciation = $304,000 2015 depreciation = $182,400 12/31/15 book value = $273,600

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