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ABC Company purchased equipment on January 1, 2014. Availableinformation regarding this equipment and its acquisition are:

Cost: $800,000

Estimated useful life: 8 years

Estimated service hours: 40,000

Residual value: $60,000

The equipment was operated for a total of 5,000 hours in 2014and 7,000 hours in 2015. It is company policy to take a full year’sdepreciation on all assets depreciated by time-based method in theyear of acquisition.

( 1). Calculate the depreciation expense that will be recordedat the 12/31 fiscal year end for 2014 and 2015 under followingmethods: SHOW ALL WORK! (round amounts to nearest dollar asnecessary)

(a) straight-line

(b) double-declining balance

(c) sum-of-the-years’-digits

(d) service hours (round rate to the nearest cent asnecessary)

(2). Show calculations or T account to support your answers.Calculate the following amounts linked to this asset, assumingstraight-line depreciation:

(a) depreciation base

(b) book value of the equipment to be reported on the 12/31/15balance sheet

(c) total depreciation that was taken on the equipment as of theend of its useful life, i.e. the balance in the accumulateddepreciation account at the end of the asset’s useful life

(d) book value of the equipment at the end of its usefullife

(e) the amount by which total depreciation at the end of theuseful life of the equipment would be different under thestraight-line method vs. double-declining balance method

(f) identify which of the depreciation methods listed above areaccelerated methods

(g) record the adjusting entry for depreciation at 12/31/15assuming the company uses the double declining balance method ofdepreciation.

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Reid Wolff
Reid WolffLv2
28 Sep 2019

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The cost of equipment purchased by Charleston, Inc., on June 1,2014, is $149,520. It is estimated that the machine will have a$8,400 salvage value at the end of its service life. Its servicelife is estimated at 7 years, its total working hours are estimatedat 70,560, and its total production is estimated at 882,000 units.During 2014, the machine was operated 10,080 hours and produced92,400 units. During 2015, the machine was operated 9,240 hours andproduced 80,640 units. Compute depreciation expense on the machinefor the year ending December 31, 2014, and the year ending December31, 2015, using the following methods. (Round answers to 0 decimalplaces, e.g. 45,892.)

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The cost of equipment purchased by Charleston, Inc., on June 1,2014, is $128,160. It is estimated that the machine will have a$7,200 salvage value at the end of its service life. Its servicelife is estimated at 7 years, its total working hours are estimatedat 60,480, and its total production is estimated at 756,000 units.During 2014, the machine was operated 8,640 hours and produced79,200 units. During 2015, the machine was operated 7,920 hours andproduced 69,120 units.

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