Print service Co. purchased a new color copier at the beginning of year 1 for $3

Question

Print service Co. purchased a new color copier at the beginning of year 1 for $35,000. The copier is expected to have a 5 year useful life and a $5,000 salvage value. The expected copy production was estimated at 2,000,000 copies. Actual copy production for the five years was as follows: Year Number of copies produced Year 1 550,000 Year 2 480,000 Year 3 380,000 Year 4 390,000 Year 5 240,000 Total 2,040,000 The copier was sold at the end of Year 5 for $5,200 a) Compute the depreciation expense for each of the five years, using double-declining balance depreciation method b) Compute the depreciation expense for each of the five years, using units-of-production method. c) Calculate the amount of gain or loss from the sale of the asset under each of the depreciation methods.

Explanation / Answer

a Double-declining depreciation rate = 1/5*2= 40% Year 1 14000 =35000*40% Year 2 8400 =(35000-14000)*40% Year 3 5040 =(35000-14000-8400)*40% Year 4 2560 Year 5 0 b Per unit depreciation=(35000-5000)/2000000= $0.015 Year 1 8250 =550000*0.015 Year 2 7200 =480000*0.015 Year 3 5700 =380000*0.015 Year 4 5850 =390000*0.015 Year 5 3000 c Gain under both methods will be $200(5200-5000)

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