ACCT 1202 Chapter Notes - Chapter 9: Capital Expenditure

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chocolateoyster281

21 Apr 2014

School

Northeastern University

Department

Accounting

Course

ACCT 1202

Professor

All

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Document Summary

Chapter 9: depreciation, cost allocation not valuation, methods. Declining balance: three variables for calculating. Estimated useful life (units of time; months, years, etc. ) or (units of production) Estimated residual value (salvage, scrap, etc. : depreciable basis: cost- residual value= basis, straight-line, based on units of time, passage of time regardless of use, sl rate [%] Basis/ life= annual depr: contra asset accounts, allowance for doubtful accounts, accumulated depreciation, basis= cost of asset- residual value, a/r= [a/r- acc. Dep: units-of-activity, based on unites of output, usage not time, formula: Production x unit rate: expenditures during useful life, capital expenditure. Debit expense a/c: asset disposal, voluntary. Abandonment [ scrapping : potential loss but never gain. 5 years: basis ,000, annual depreciation ,400, (a) cash. Patents: exclusive rights to product for specified # of years. Copyrights: gives owner exclusive rights to reproduce and sell work. Franchise fees: contractual arrangement between franchisor and franchisee, unlimited life.

Related Questions

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.

goldtermite491

Depreciation by Two Methods; Sale of Fixed Asset

New lithographic equipment, acquired at a cost of $800,000 atthe beginning of a fiscal year, has an estimated useful life offive years and an estimated residual value of $90,000. The managerrequested information regarding the effect of alternative methodson the amount of depreciation expense each year. On the basis ofthe data presented to the manager, the double-declining-balancemethod was selected.

In the first week of the fifth year, the equipment was sold for$135,000.

Required:

1. Determine the annual depreciation expensefor each of the estimated five years of use, the accumulateddepreciation at the end of each year, and the book value of theequipment at the end of each year by the following methods:

a. Straight-line method

Year	DepreciationExpense	Accumulated Depreciation,End of Year	Book Value, End ofYear
1	$	$	$
2	$	$	$
3	$	$	$
4	$	$	$
5	$	$	$

b. Double-declining-balance method

Year	DepreciationExpense	Accumulated Depreciation,End of Year	Book Value, End ofYear
1	$	$	$
2	$	$	$
3	$	$	$
4	$	$	$
5	$	$	$

yellowworm651

13.

Equipment was purchased on January 5, 2011, at a cost of$90,000. The equipment had an estimated useful life of 8 years andan estimated residual value of $8,000.

After using the equipment for 3 years, the useful life was revisedto a total of 10 years and the residual value was reduced to$2,004.

Determine the straight-line depreciation expense for the year 2014and following years.

14. Machinery acquired at a cost of $80,000 and on whichthere is accumulated depreciation of $55,000 (includingdepreciation for the current year to date) is exchanged for similarmachinery. For financial reporting purposes, present entries torecord the disposition of the old machinery and the acquisition ofnew machinery under each of the following assumptions:

(a)	Price of new, $120,000; trade-in allowance on old, $4,000;balance paid in cash.
(b)	Price of new, $120,000; trade-in allowance on old, $34,000;balance paid in cash.

15.

Machinery is purchased on July 1 of the current fiscal yearfor $240,000. It is expected to have a useful life of 4 years, or25,000 operating hours, and a residual value of $15,000. Computethe depreciation for the last six months of the current fiscal yearending December 31 by each of the following methods:

(a)	straight-line
(b)	declining-balance at twice the straight-linerate
(c)	units-of-production (used for 1,600 hours during thecurrent year)

(Round the answer to the nearestdollar.)

orangelion215

ACCT 1202 Chapter Notes - Chapter 9: Capital Expenditure

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