Chap008wildtextbook

# On equipment was purchased for 50000 cash the

• Notes
• 42

This preview shows pages 14–26. Sign up to view the full content.

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?

This preview has intentionally blurred sections. Sign up to view the full version.

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

This preview has intentionally blurred sections. Sign up to view the full version.

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

This preview has intentionally blurred sections. Sign up to view the full version.

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

This preview has intentionally blurred sections. Sign up to view the full version.

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

This preview has intentionally blurred sections. Sign up to view the full version.

Most corporations use the Modified Accelerated Cost Recovery System (MACRS) for tax purposes. MACRS depreciation provides for rapid write-off of an asset’s cost in order to stimulate new investment . Depreciation for Tax Reporting 8-23
Calculate the straight-line depreciation on December 31, 2011, for equipment purchased on June 30, 2011. The equipment cost \$75,000, has a useful life of 10 years, and an estimated salvage value of \$5,000. No Calculations of Partial-Year Depreciation Required Depreciation = (\$75,000 - \$5,000) ÷ 10 = \$7,000 for all 2011 Depreciation = \$7,000 × 6/12 = \$3,500 for 6 months Partial-Year Depreciation 8-24

This preview has intentionally blurred sections. Sign up to view the full version.

Reporting Depreciation Property, plant, and equipment: Land and buildings 150,000 \$ Machinery and equipment 200,000
This is the end of the preview. Sign up to access the rest of the document.
• Fall '12
• Cornell

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern