Chap008wildtextbook

On equipment was purchased for 50000 cash the

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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?
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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
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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
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Depreciation Expense Early Years High Later Years Low Declining Balance Method 8-17
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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
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2011 Depreciation: 40% × $50,000 = $20,000 Double-Declining-Balance Method 2012 Depreciation: 40% × ($50,000 - $20,000 ) = $12,000 8-19
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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
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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
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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
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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
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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
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Reporting Depreciation Property, plant, and equipment: Land and buildings 150,000 $ Machinery and equipment 200,000
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