PR 10-2A Compare three depreciation methods

Breyer Company purchased packaging equipment on January 3, 2010, for $101,250. The equipment was expected to have a useful life of three years, or 25,000 operating hours, and a residual value of $7,500. The equipment was used for 9,500 hours during 2010, 8,400 hours in 2011, and 7,100 hours in 2012. Instructions
1. Determine the amount of depreciation expense for the years ended December 31, 2010, 2011, and 2012, by (a) the straight-line method, (b) the units-of-production method, and (c) the double-declining-balance method. Also determine the total depreciation expense for the three years by each method. The following columnar headings are suggested for recording the depreciation expense amounts:

Depreciation Expense
Year
StraightLine Method
Units-of- Production Method
Double-DecliningBalance Method

2. What method yields the highest depreciation expense for 2010? 3. What method yields the most depreciation over the three–year life of the equipment?

Answer:


1.  
Depreciation Expense   a. Straight- b. Units-of- c. Double-   Line Production Declining-Balance  Year Method Method Method   2010 $31,250 $35,625 $67,500  2011 31,250 31,500 22,500  2012  31,250  26,625  3,750  Total $93,750 $93,750 $93,750 

Calculations:  
Straight-line method:  
($101,250 – $7,500)/3 = $31,250 each year  

Units-of-production method:  
($101,250 – $7,500)/25,000 hours = $3.75 per hour  
2010: 9,500 hours @ $3.75 = $35,625  
2011: 8,400 hours @ $3.75 = $31,500  
2012: 7,100 hours @ $3.75 = $26,625  

Double-declining-balance method:  
2010: $101,250 × 2/3 = $67,500  
2011: ($101,250 – $67,500) × 2/3 = $22,500  
2012: ($101,250 – $67,500 – $22,500 – $7,500*) = $3,750

*Book value should not be reduced below the residual value of $7,500.  
2.  The double-declining-balance method yields the most depreciation expense in 2010 of $67,500.
3.  All three depreciation methods yield the same total depreciation over the three-year life of the equipment of $93,750, which is the cost of the equipment of $101,250 less the residual value of $7,500.

Popular posts from this blog

PR 9-2A Aging of receivables; estimating allowance for doubtful accounts

Image
Angler’s Dream Company supplies flies and fishing gear to sporting goods stores and outfitters throughout the western United States. The accounts receivable clerk for Angler’s Dream prepared the following partially completed aging of receivables schedule as of the end of business on December 31, 2011: The following accounts were unintentionally omitted from the aging schedule: Customer                                            Due Date                        Balance  Antelope Sports & Flies                June 21, 2011                      $ 3,000  Big Hole Flies                               Aug. 30, 2011         ...
Read more

PR 10-5A Transactions for fixed assets, including sale

The following transactions, adjusting entries, and closing entries were completed by D. Hurd Furniture Co. during a three-year period. All are related to the use of delivery equipment. The double-declining-balance method of depreciation is used. 2010 Jan.  9. Purchased a used delivery truck for $30,000, paying cash. Mar. 17. Paid garage $400 for miscellaneous repairs to the truck. Dec. 31. Recorded depreciation on the truck for the year. The estimated useful life of the truck is four years, with a residual value of $6,000 for the truck. 2011 Jan.   2. Purchased a new truck for $48,000, paying cash. Aug   1. Sold the used truck for $12,500. (Record depreciation to date in 2011 for the truck.) Sept. 23. Paid garage $325 for miscellaneous repairs to the truck. Dec. 31. Record depreciation for the new truck. It has an estimated residual value of $11,000 and an estimated life of fi ve years. 2012 July    1. Purchased a new truck for $52,000, paying cash. Oct.   ...
Read more

PR 9-1A Entries related to uncollectible accounts

Image
The following transactions were completed by Axiom Management Company during the current fiscal year ended December 31: Feb.  17. Received 25% of the $30,000 balance owed by Gillespie Co., a bankrupt business, and wrote off the remainder as uncollectible. Apr.  11. Reinstated the account of Colleen Bertram, which had been written off in the preceding year as uncollectible. Journalized the receipt of $4,250 cash in full payment of Colleen’s account. July  6. Wrote off the $9,000 balance owed by Covered Wagon Co., which has no assets. Nov. 20. Reinstated the account of Dugan Co., which had been written off in the preceding year as uncollectible. Journalized the receipt of $5,900 cash in full payment of the account. Dec. 31. Wrote off the following accounts as uncollectible (compound entry): Kipp Co., $3,000; Moore Co., $4,000; Butte Distributors, $8,000; Parker Towers, $6,700.          31. Based on an analysis of the $1,200,000 of accounts receivabl...
Read more