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ACCOUNTG 221 Lecture 6: 11:8 Depreciation

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School
UMASS-Amherst
Department
Accounting
Course
ACCOUNTG 221
Professor
Catherine West Lowry

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Document Summary

Straight-line method the same amount of depreciation is taken each accounting period: 2. Double-declining balance produces more depreciation e(cid:454)pense in the earl(cid:455) (cid:455)ears of an asset"s life (cid:449)ith a de(cid:272)lining amount of expense in later years: 3. Units of production (straight line by units) produces varying amounts of depreciation in different accounting periods depending upon the number of units produced or used; used for natural resources. Asset to be depreciated: list price of truck: 250 cost of customization: 2,600 cost of truck: ,000: a truck has a salvage value of ,000 and an estimated useful life of 4 years, can"t depre(cid:272)iate (cid:271)elo(cid:449) sal(cid:448)age (cid:448)alue, truck is always on the books at cost, net book value = cost accumulated depreciation. Straight line depreciation: purchase truck on jan 1 2016 for a net cost of 24,000. Cash decreases, truck increases: use the truck to generate 10,000 revenue for the period; depreciation expense calculated under straight-line is determined as followed:

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Related Questions

Monte’s Coffee Company purchased packaging equipment on January5, 2014, for $90,000. The equipment was expected to have a usefullife of three years, or 20,000 operating hours, and a residualvalue of $6,000. The equipment was used for 8,900 hours during2014, 7,100 hours in 2015, and 4,000 hours in 2016.

Required:
1. Determine the amount ofdepreciation expense for the years ended December 31, 2014, 2015,and 2016 by (a) the straight-line method, (b) the units-of-outputmethod, and (c) the double-declining-balance method. Also determinethe total depreciation expense for the three years by each method.(Note: For DECLINING BALANCE ONLY, round theanswer for each year to the nearest whole dollar.)
2. What method yields the highestdepreciation expense for 2014?
3. What method yields the mostdepreciation over the three-year life of the equipment?

X

Depreciation Expense

1. Determine the amount of depreciation expense for the yearsended December 31, 2014, 2015, and 2016 by (a) the straight-linemethod, (b) the units-of-output method, and (c) thedouble-declining-balance method. Also determine the totaldepreciation expense for the three years by each method.

Score: 0/45

Depreciation Expense

1

Year

Straight-Line Method

Units-of-Output Method

Double-Declining-Balance Method

2

2014

3

2015

4

2016

5

Total

Points:

0 / 12

Feedback

Check My Work

Asset cost minus residual value equals depreciable cost. Sum theyearly depreciation to determine total depreciation.

Annual units-of-production depreciation allocates the cost ofthe asset equally over the units produced (hours).

The double-declining rate is two times the straight-line rate.Book value is the asset cost minus accumulated depreciation. In thefirst year, the balance in the accumulated depreciation account iszero.

Shaded cells have feedback.

P10-3A

On January 1, 2008, Pele Company purchased the following twomachines for use in its production process.
Machine A The cash price of this machine was $38,000. Relatedexpenditures included: sales tax $1,700, shipping costs $150,insurance during shipping $80, installation and testing costs $70,and $100 of oil and lubricants to be used with the machinery duringits first year of operations. Pele estimates that the useful lifeof the machine is 5 years with a $5,000 salvage value remaining atthe end of that time period. Assume that the straight-line methodof depreciation is used.
Machine B The recorded cost of this machine was $160,000. Peleestimates that the useful life of the machine is 4 years with a$10,000 salvage value remaining at the end of that timeperiod.






Correct.

Prepare the following for Machine A.
1. The journal entry to record its purchase on January 1,2008.
2. The journal entry to record annual depreciation at December 31,2008.
Account / Description Debit Credit
1. Machinery
$ 40000

Cash
$ 40000

2. Depreciation expense
$ 7000

Accumulated depreciation
$ 7000





This part is not coming out


Incorrect.





Calculate the amount of depreciation expense that should record formachine B each year of its useful life under the followingassumptions. (Round depreciation cost per unit to 2 decimal places.Round final answers to 0 decimal places, e.g. 125.)

Pele uses the straight-line method of depreciation.
Pele uses the declining-balance method. The rate used is twice thestraight-line rate.
Pele uses the units-of-activity method and estimates that theuseful life of the machine is 125,000 units. Actual usage is asfollows: 2008, 45,000 units; 2009, 35,000 units; 2010, 25,000units; 2011, 20,000 units.


Year 1
Year 2
Year 3
Year 4

1.
Straight-line
$
$
$
$

2.
Declining-balance
$
$
$
$

3.
Units-of-activity
$
$
$
$




Year 4 1. 4000

2. 24000


3 .2400













Incorrect.





Which method used to calculate depreciation on machine B reportsthe highest amount of depreciation expense in year 1 (2008)?declining-balance method This is correct

The highest amount in year 4 (2011)? units-of-activity methodallmethods are the samedeclining-balance methodstraight-linemethod

The highest total amount over the 4-year period? declining-balancemethodunits-of-activity methodall methods are the samestraight-linemethod



















Depreciation by Three Methods; Partial Years

Perdue Company purchased equipment on April 1 for $48,870. The equipment was expected to have a useful life of three years, or 4,320 operating hours, and a residual value of $1,350. The equipment was used for 800 hours during Year 1, 1,500 hours in Year 2, 1,300 hours in Year 3, and 720 hours in Year 4.

Required:

Determine the amount of depreciation expense for the years ended December 31, Year 1, Year 2, Year 3, and Year 4, by (a) the straight-line method, (b) units-of-output method, and (c) the double-declining-balance method.

Note: FOR DECLINING BALANCE ONLY, round the multiplier to four decimal places. Then round the answer for each year to the nearest whole dollar.

a. Straight-line method

Year Amount
Year 1 $
Year 2 $
Year 3 $
Year 4 $

b. Units-of-output method

Year Amount
Year 1 $
Year 2 $
Year 3 $
Year 4 $

c. Double-declining-balance method

Year Amount
Year 1 $
Year 2 $
Year 3 $
Year 4 $

Feedback

Asset cost minus residual value equals depreciable cost. Sum the yearly depreciation to determine total depreciation.

Annual units-of-output depreciation allocates the cost of the asset equally over the units produced (hours).

The double-declining rate is two times the straight-line rate. Book value is the asset cost minus accumulated depreciation.

Compare the total depreciation for all methods over the time period. Recall that straight-line depreciation allocates the depreciable cost of the asset equally over the period of use, while double-declining method is an accelerated method.

Learning Objective 2.