Part 1 New tire re-treading equipment, acquired at a cost of $120,000 on 1/2/06,
ID: 2577844 • Letter: P
Question
Part 1 New tire re-treading equipment, acquired at a cost of $120,000 on 1/2/06, has an estimated useful life of 5 years and an estimated residual value of $10,000. The manager requested information regarding the alternative methods on the amount of depreciation expense each year. Instructions: Determine the amount of depreciation expense, accumulated depreciation, and book value for the years ended December 31, 2006, 2007, 2008, 2009, 2010 by • the straight line method • the double declining balance method • units of production Assume that it is estimated that the equipment will be used for 10,000 operating hours. (2,500 (06), 3,000 (07), 2,750 (08), 1,500 (09), 250 (2010). (Present and submit all of your work in the Problem 3 Part 1 Tab) Part 2 Assume that the manager decided to use the double declining balance method for the tire re-treading equipment above. Record the following journal entries: 1. On 4/15/2006 the company paid $1,000 for an ordinary repair. 2. On 1/1/07 the company paid $10,000 for a major engine overhaul. 3. On 7/01/2009 the company sold the equipment for $20,000. (Present and submit all of your work in the Problem 3 Part 2 Tab) Submit one set of answers per group for all four problems. Make sure to include each group members name at the top of each spreadsheet.
Explanation / Answer
Part 1
Calculations:
Part 2
*Accumulated depreciation-equipment = 94080 + (25920 x 40% x 6/12) = 94080 - 10000 + 5184 = 89264
A. Straight-line Year Depreciable Cost x Depreciation Rate = Annual Depreciation Expense End of Year Accumulated Depreciation Book Value 2006 110000 20% 22000 22000 98000 2007 110000 20% 22000 44000 76000 2008 110000 20% 22000 66000 54000 2009 110000 20% 22000 88000 32000 2010 110000 20% 22000 110000 10000 B. Double Declining Balance Year Book Value Beginning of Year x Depreciation Rate = Annual Depreciation Expense End of Year Accumulated Depreciation Book Value 2006 120000 40% 48000 48000 72000 2007 72000 40% 28800 76800 43200 2008 43200 40% 17280 94080 25920 2009 25920 40% 10368 104448 15552 2010 15552 5552 110000 10000 C. Units of Production Year Units of Activity x Depreciation cost per unit = Annual Depreciation Expense End of Year Accumulated Depreciation Book Value 2006 2500 11 27500 27500 92500 2007 3000 11 33000 60500 59500 2008 2750 11 30250 90750 29250 2009 1500 11 16500 107250 12750 2010 250 11 2750 110000 10000