Pharoah Limited purchased equipment on February 1, 2024, at a cost of $160,790. As the CFO of the company, you are considering the merits of using the diminishing-balance or units-of-production method of depreciation instead of the straight-line method, which is currently being used for other equipment. The new equipment has an estimated residual value of $10,000 and an estimated useful life of either five years or 88,700 units. Demand for the products produced by the equipment is sporadic so the equipment will be used more in some years than in others. Assume the equipment produces the following numbers of units each year: 15,000 units in 2024; 26,000 units in 2025; 20,000 units in 2026; 15,000 units in 2027; 12,000 units in 2028; and 700 units in 2029. Pharoah has a December 31 year end.
Pharoah Limited purchased equipment on February 1, 2024, at a cost of $160,790. As the CFO of the company, you are considering the merits of using the diminishing-balance or units-of-production method of depreciation instead of the straight-line method, which is currently being used for other equipment. The new equipment has an estimated residual value of $10,000 and an estimated useful life of either five years or 88,700 units. Demand for the products produced by the equipment is sporadic so the equipment will be used more in some years than in others. Assume the equipment produces the following numbers of units each year: 15,000 units in 2024; 26,000 units in 2025; 20,000 units in 2026; 15,000 units in 2027; 12,000 units in 2028; and 700 units in 2029. Pharoah has a December 31 year end.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Pharoah Limited purchased equipment on February 1, 2024, at a cost of $160,790. As the CFO of the company, you are considering
the merits of using the diminishing-balance or units-of-production method of depreciation instead of the straight-line method, which
is currently being used for other equipment. The new equipment has an estimated residual value of $10,000 and an estimated useful
life of either five years or 88,700 units. Demand for the products produced by the equipment is sporadic so the equipment will be used
more in some years than in others. Assume the equipment produces the following numbers of units each year: 15,000 units in 2024;
26,000 units in 2025; 20,000 units in 2026; 15,000 units in 2027; 12,000 units in 2028; and 700 units in 2029. Pharoah has a
December 31 year end.
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