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9,000 45,000 5,000 45,000 $ 45,000 $ salvage value

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Unformatted text preview: 9,000 45,000 5,000 45,000 $ 45,000 $ Salvage Value Straight-Line Method Depreciation Rate = (100% ÷ 5 years) = 20% per year 8-12 Units-of-Production Method Step 2: Depreciation Expense = Depreciation Per Unit × Number of Units Produced in the Period Depreciation Per Unit = Cost - Salvage Value Total Units of Production Step 1: 8-13 On December 31, 2011, equipment was purchased for $50,000 cash. The equipment is expected to produce 100,000 units during its useful life and has an estimated salvage value of $5,000. Units-of-Production Method 8-14 If 22,000 units were produced in 2011, what is the amount of depreciation expense? Step 2: Depreciation Expense = $.45 per unit × 22,000 units = $9,900 Step 1: Depreciation Per Unit = $50,000 - $5,000 100,000 units = $.45 per unit Units-of-Production Method 8-15 Depreciation Accumulated Book Year Units Expense Depreciation Value 50,000 $ 2011 22,000 9,900 $ 9,900 $ 40,100 2012 28,000 12,600 22,500 27,500 2013-- 22,500 27,500 2014 32,000 14,400 36,900 13,100 2015 18,000 8,100 45,000 5,000 100,000 45,000 $ No depreciation expense if the equipment is idle. Units-of-Production Method 8-16 Depreciation Expense Early Years High Later Years Low Declining Balance Method 8-17 Double-Declining-Balance Method Step 2: Double-declining- balance rate = 2 × Straight-line rate = 2 × 20% = 40% Step 1: Straight-line rate = 100 % ÷ Useful life = 100% ÷ 5 = 20% Step 3: Depreciation expense = Double-declining- balance rate × Beginning period book value 40% × $50,000 = $20,000 for 2011 8-18 2011 Depreciation: 40% × $50,000 = $20,000 Double-Declining-Balance Method 2012 Depreciation: 40% × ($50,000 - $20,000 ) = $12,000 8-19 Depreciation Accumulated Book Year Expense Depreciation Value 50,000 $ 2011 20,000 $ 20,000 $ 30,000 2012 12,000 32,000 18,000 2013 7,200 39,200 10,800 2014 4,320 43,520 6,480 2015 2,592 46,112 3,888 46,112 $ Below salvage value Double-Declining-Balance Method 8-20 Depreciation Accumulated Book Year Expense Depreciation Value 50,000 $ 2011 20,000 $ 20,000 $ 30,000 2012 12,000 32,000 18,000 2013 7,200 39,200 10,800 2014 4,320 43,520 6,480 2015 1,480 45,000 5,000 45,000 $ We usually must force depreciation expense in the last year so that book value equals salvage value . Double-Declining-Balance Method 8-21 Comparing Depreciation Methods Annual Production Depreciation Life in Years $0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000 $16,000 1 2 3 4 5 Life in Years Annual SL Depreciation $0 $2,000 $4,000 $6,000 $8,000 $10,000 1 2 3 4 5 Annual DDB Depreciation Life in Years $0 $5,000 $10,000 $15,000 $20,000 1 2 3 4 5 P2 8-22 Most corporations use the Modified Accelerated Cost Recovery System (MACRS) for tax purposes....
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9,000 45,000 5,000 45,000 $ 45,000 $ Salvage Value...

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