Boston Corp. purchased equipment with a cost of $70,000 at the beginning of 2016
ID: 2823315 • Letter: B
Question
Boston Corp. purchased equipment with a cost of $70,000 at the beginning of 2016. The equipment has an estimated life of 25 years or 25,000 units of product. The estimated residual value is $7,500. During 2016, 1,100 units of product were produced with this machinery. Determine the following:
a. Amount of total accumulated depreciation at December 31, 2016, using units-of-production depreciation.
$
b. Book value at the end of 2016 using straight-line depreciation.
$
c. A company may choose units-of-production depreciation instead of straight-line,
Explanation / Answer
CALCULATION OF THE DEPRECIATION AS PER STRAIGHT LINE METHOD FOR MACHINE Purchase Cost of Machine $ 70,000.00 Less: Salvage Value $ 7,500.00 Net Value for Depreciation $ 62,500.00 Usefule life of the Assets 25 years Depreciation per year = Value for Depreciation / 25 years = 2,500.00 Total Depreciation for the year 2016 = $ 2,500.00 CALCULATION OF THE DEPRECIATION AS PER UNITS OF PRODUCTION Purchase Cost of Machine $ 70,000.00 Less: Salvage Value $ 7,500.00 Net Value for Depreciation $ 62,500.00 Expected to production in Units 25,000.00 Units Depreciation per Hours = 2.50 Per Units ($ 84,000 / 525,000 Units) Depreciation for Year 2016 = (1100 units * $ 2.50) $ 2,750.00 Answer = a) = Total Depreciation as per unit of production = 2,750.00 Answer = b) Purchase value of the assets = 70,000.00 Less: depreciation as per SLM 2,500.00 Book Value at the end of the year 2016 = 67,500.00 Answer = c) Yes the company may choose units of production because the depreciation of the year is higher in this when the depreciation is higher than there is saving of income tax