Challenge Exercises E7-43 Learning Objective 2: Computing units-of-production de
ID: 2600576 • Letter: C
Question
Challenge Exercises E7-43 Learning Objective 2: Computing units-of-production depreciation) Buff Gym purchased exercise equipment at a cost of $107,000, In addition, Buff paid $3,000 for a special platform on which to stabilize the equipment for use. Freight costs of $1,600 to ship the equipment were borne by the seller. Buff will depreciate the equipment by the units-of- production method, based on an expected useful life of 55,000 hours of exercise. The estimated residual value of the equipment is $11,000. How many hours did Buff Gym use the machine if depreciation expense is $4,320? E7-44 (Learning Objective 4: Determining the sale price of property and equipment) Wilson Corporation reported the following for property and equipment (in millions, adapted): Property and eguipmenc Accunulated depredati 20X6 $24073 $2011 During 20X7, Wilson paid $2,510 million for new property and equipment. Depreciation for the year totaled $1,546 million. During 20X7, Wilson sold property and equipment for cash of $48 million, How much was Wilson's gain or loss on the sale of property and equipment during 20XT?Explanation / Answer
E7-43) Depreciation using units of production method (per hour) = (Total cost - residual value)/useful life in hours
Total cost of equipment = $107,000+$3,000 = $110,000
(The freight cost will not be included in total cost because it is borne by seller)
Depreciation per unit = ($110,000-$11,000)/55,000 hours = $1.8 per hour
Depreciation expense = Depreciation per hour*Hours used
$4,320 = $1.8 per hour*Hours used
Hours used = $4,320/$1.8 = 2,400 hours
E7-44) Calculation of cost of Property, Plant and Equipment sold (Amt. in million $)
Calculation of accumulated depreciation of PPE sold (Amt. in million $)
Net Book Value of PPE sold = Cost - Accumulated Depreciation = $448 million - $327 million = $121 million
Sale price of PPE = $48 million
Loss on sale of Property, Plant and Equipment = Net book value - Sale Price
= $121 million - $48 million = $73 million
Opening Property,Plant and Equipment (PPE) 22,011 Add: Property, Plant and Equipment purchased in 20X7 2,510 Less: Closing Balance of Property, Plant and Equipment (24,073) Cost of Property Plant and Equipment sold 448Related Questions
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