Crackling Fried Chicken bought equipment on January 2, 2016, for $21,000. The eq
ID: 2424014 • Letter: C
Question
Crackling Fried Chicken bought equipment on January 2, 2016, for $21,000. The equipment was expected to remain in service for four years and to perform 3,600 fry jobs. At the end of the equipment's useful life, Crackling estimates that its residual value will be $3,000. The equipment performed 360 jobs the first year, 1,080 the second year, 1,440 the third year and 720 the fourth year.
1. Prepare a schedule of depreciation expense, accumulated depreciation and book value per year for the equipment under the three depreciation methods. Show your computations. Note: Three depreciation scehduled must be prepared.
Explanation / Answer
Method 1: Straight Line Method:
The annual depreciation under straight line method is calculated as follows:
Annual Depreciation = (Cost - Salvage Value)/Estimated Life = (21,000 - 3,000)/4 = $4,500
The schedule is given below:
________
Method 2: Units of Production Method
The depreciation rate per unit is calculated as follows:
Depreciation Rate per Unit = (Cost - Salvage Value)/Total Estimated Production = (21,000 - 3,000)/3,600
The schedule is given below:
________
Method 3: Double Declining Method
Depreciation Rate under Double Declining Method = 1/Estimated Life*2 = 1/4*2 = 50%
The schedule is given below:
Year Asset Cost Depreciation Expense Accumulated Depreciation Book Value (Asset Cost – Accumulated Depreciation) 02-Jan-2016 21,000 0 0 21,000 31-Dec-2016 21,000 4,500 4,500 16,500 31-Dec-2017 21,000 4,500 9,000 (4,500 + 4,500) 12,000 31-Dec-2018 21,000 4,500 13,500 (9,000 + 4,500) 7,500 31-Dec-2019 21,000 4,500 18,000 (13,500 + 4,500) 3,000