EBK INTERMEDIATE ACCOUNTING: REPORTING
EBK INTERMEDIATE ACCOUNTING: REPORTING
2nd Edition
ISBN: 9781337268998
Author: PAGACH
Publisher: YUZU
bartleby

Concept explainers

bartleby

Videos

Question
Book Icon
Chapter 11, Problem 1P

1.

To determine

Calculate the depreciation expense of Company W for 2016 and 2017 under straight line method.

1.

Expert Solution
Check Mark

Explanation of Solution

Depreciation expense: Depreciation expense is a non-cash expense, which is recorded on the income statement reflecting the consumption of economic benefits of long-term asset on account of its wear and tear or obsolesces.

Straight-line depreciation method: The depreciation method which assumes that the consumption of economic benefits of long-term asset could be distributed equally throughout the useful life of the asset is referred to as straight-line method.

Calculate the depreciation expense of Company W under straight line method as follows:

Depreciation expenses=Acquisition cost – Residual valueUseful life =$700,000$50,00020 years=$32,500 per year

Conclusion

Therefore, the depreciation expense of Company W under straight line method is $22,500.

2.

To determine

Calculate the depreciation expense of Company W for 2016 and 2017 under activity method based on hours worked.

2.

Expert Solution
Check Mark

Explanation of Solution

Activity method:   In this method of depreciation, the amount of depreciation is charged based on the units of production or hours worked each year. When the usefulness of an asset is related to the production cost of a unit, this method is more appropriate to use.

Calculate the depreciation expense of Company W for 2016 and 2017 under activity method based on hours worked as follows:

2016:

Depreciation expense  = (Hours worked  ×Cost per hour)=4,500 hours ×$6.50 per hour (1)=$29,250

2017:

Depreciation expense  = (Hours worked  ×Cost per hour)=5,500 hours ×$6.50 per hour (1)=$35,750

Working note (1):

Calculate the cost per hour.

Cost per hour = Cost of equipment Residual valueTotal estimated serivce hours=$700,000$50,000100,000 hours=$6.50

3.

To determine

Calculate the depreciation expense of Company W for 2016 and 2017 under activity method based on units of output.

3.

Expert Solution
Check Mark

Explanation of Solution

Calculate the depreciation expense of Company W for 2016 and 2017 under activity method based on units of output as follows:

2016:

Depreciation expense  = (Output units  ×Cost per unit)=40,000 units ×$0.68 per unit (2)=$27,200

2017:

Depreciation expense  = (Output units  ×Cost per unit)=60,000 units ×$0.68 per unit (2)=$40,800

Working note (2):

Calculate the cost per unit.

Cost per unit = Cost of equipment Residual valueTotal out put units=$700,000$50,000950,000 units=$0.68 per unit

4.

To determine

Calculate the depreciation expense of Company W for 2016 and 2017 under sum-of years’ digit method.

4.

Expert Solution
Check Mark

Explanation of Solution

Sum-of- the-years’ digits method: Sum-of-the years’ digits method determines the depreciation by multiplying the depreciable base and declining fraction.

Calculate the depreciation expense of Company W for 2016 and 2017 under sum-of years’ digit method as follows:

Year

Depreciable

Base

 ($) (3)

 

Depreciation

rate per year

 

Depreciation expense

($)

2016650,000×20210=61,905
2017650,000×19210=58,810

Table (1)

Working note (3):

Calculate the depreciable base of asset.

Depreciable base = Purchase price –Residual value = $700,000–$50,000=$650,000

Working note (4):

Calculate the denominator of the fraction for sum-of-the-year’s digit.

Sum-of-the-digits = n×(n+1)2=20×(20+1)2=20×212=210

5.

To determine

Calculate the depreciation expense of Company W for 2016 and 2017 under the double-declining balance method.

5.

Expert Solution
Check Mark

Explanation of Solution

Double-declining-balance method: The depreciation method which assumes that the consumption of economic benefits of long-term asset is high in the early years but gradually declines towards the end of its useful life, is referred to as double-declining-balance method

Calculate the depreciation expense of Company W for 2016 and 2017 under the double-declining balance method as follows:

2016:

Depreciation expense=Aquisition cost of equipment×Depreciation Rate (5)=$700,000×10100=$70,000

2017:

Depreciation expense=[Aquisition cost of equipmentDepreciation expense for 2016]×Depreciation Rate (5)=($700,000$70,000)×10100=$63,000

Working note (5):

Compute the depreciation rate:

Useful life = 20 years

Depreciation rate=100%20 years×2=10%

6.

To determine

Calculate the depreciation expense of Company W for 2016 and 2017 under the 150%-declining balance method.

6.

Expert Solution
Check Mark

Explanation of Solution

Calculate the depreciation expense of Company W for 2016 and 2017 under the 150%- declining balance method as follows:

2016:

Depreciation expense=Aquisition cost of equipment×Depreciation Rate (6)=$700,000×7.5100=$52,500

2017:

Depreciation expense=[Aquisition cost of equipmentDepreciation expense for 2016]×Depreciation Rate (6)=($700,000$52,500)×7.5100=$48,563

Working note (6):

Compute the depreciation rate:

Useful life = 20 years

Depreciation rate=100%20 years×1.5=7.5%

7.

To determine

Identify the effect of the depreciation expense under straight line, sum of the year’s digit, and declining balance methods, assume Company W used a service life of 16 years, 80,000 hours, or 75,000 units of output.

7.

Expert Solution
Check Mark

Explanation of Solution

Identify the effect of the depreciation expense under straight line, sum of the year’s digit, and declining balance methods, assume Company W used a service life of 16 years, 80,000 hours, or 75,000 units of output as follows:

Straight line method:

Depreciation expenses=Acquisition cost – Residual valueUseful life =$700,000$50,00016 years=$40,625 per year

Activity method (hours worked):

2016:

Depreciation expense  = (Hours worked  ×Cost per hour)=4,500 hours ×$8.125 per hour (7)=$36,563

2017:

Depreciation expense  = (Hours worked  ×Cost per hour)=5,500 hours ×$8.125 per hour (7)=$44,688

Working note (7):

Calculate the cost per hour.

Cost per hour = Cost of equipment Residual valueTotal estimated serivce hours=$700,000$50,00080,000 hours=$8.125 per hour

Activity method (unit of output):

2016:

Depreciation expense  = (Output units  ×Cost per unit)=40,000 units ×$0.87 per unit (8)=$34,800

2017:

Depreciation expense  = (Output units  ×Cost per unit)=60,000 units ×$0.87 per unit (8)=$52,200

Working note (8):

Calculate the cost per unit.

Cost per unit = Cost of equipment Residual valueTotal out put units=$700,000$50,000750,000 units=$0.87 per unit

Sum-of- the-years’ digits method:

Year

Depreciable

Base

 ($) (3)

 

Depreciation

rate per year

 

Depreciation expense

($)

2016650,000×16136=76,471
2017650,000×15136=71,691

Table (2)

Working note (9):

Calculate the denominator of the fraction for sum-of-the-year’s digit.

Sum-of-the-digits = n×(n+1)2=16×(16+1)2=16×172=136

Double-declining-balance method:

2016:

Depreciation expense=Aquisition cost of equipment×Depreciation Rate (10)=$700,000×12.5100=$87,500

2017:

Depreciation expense=[Aquisition cost of equipmentDepreciation expense for 2016]×Depreciation Rate (10)=($700,000$87,500)×12.5100=$76,563

Working note (10):

Compute the depreciation rate:

Useful life = 16 years

Depreciation rate=100%16 years×2=12.5%

150%- declining balance method:

2016:

Depreciation expense=Aquisition cost of equipment×Depreciation Rate (11)=$700,000×9.375100=$65,625

2017:

Depreciation expense=[Aquisition cost of equipmentDepreciation expense for 2019]×Depreciation Rate (11)=($700,000$65,625)×9.375100=$59,473

Working note (11):

Compute the depreciation rate:

Useful life = 16 years

Depreciation rate=100%16 years×1.5=9.375%

When the service life of an asset decreases, the depreciation expense gets increased under straight line, sum of year’s digit, and declining balance method.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
The Jefferson Co. purchased a machine on January 1, 2016. The machine cost $595,000. It had an estimated life of ten years, or 30,000 units, and an estimated residual value of $40,000. In 2016, Jeffries produced 3,000 units. Required: Compute the depreciation charge for 2016 using each of the following methods: a. Double-declining-balance methodb. Activity method (units of output)c. Sum-of-the-years'-digits methodd. Straight-line method
Xanadu Company purchased a new machine on October 1, 2014, at a cost ofTk.96,000. The company estimated that the machine will have a residual value of Tk.12,000.Themachine is expected to be used for 10,000 working hours during its 5-year life.Requirements:Compute the depreciation expense under the following methods for the year indicated.(a) Straight-line for 2014.(b) Units-of-activity for 2014, assuming machine usage was 1,700 hours.(c) Declining-balance using double the straight-line rate for 2014 and 2015.
On January 1, 2017, Bushong Company purchased equipment at a cost of $12,600. The equipment had an estimated useful life of 6 years or 30,000 hours. The equipment will have a $1,200 salvage value at the end of its life. The equipment was used 6,500 hours in 2017. The depreciation expense for the year ending December 31, 2017, using the units-of-production method would be a.$2,470. b.$2,730. c.$3,800. d.$6,500.

Chapter 11 Solutions

EBK INTERMEDIATE ACCOUNTING: REPORTING

Ch. 11 - Under U.S. GAAP, in a year in which the fair value...Ch. 11 - Prob. 12GICh. 11 - Prob. 13GICh. 11 - Compare the group and composite methods of...Ch. 11 - Prob. 15GICh. 11 - Describe the accounting for changes and...Ch. 11 - Prob. 17GICh. 11 - Prob. 18GICh. 11 - Explain the meaning of an impaired asset and...Ch. 11 - Prob. 20GICh. 11 - Prob. 21GICh. 11 - Prob. 22GICh. 11 - (Appendix 11.1) Why might depreciation on a...Ch. 11 - A method that excludes residual value from the...Ch. 11 - Prob. 2MCCh. 11 - Prob. 3MCCh. 11 - Prob. 4MCCh. 11 - A machine with a 4-year estimated useful life and...Ch. 11 - At the end of the expected useful life of a...Ch. 11 - The composite depreciation method: a. is applied...Ch. 11 - Prob. 8MCCh. 11 - A fixed asset with a 5-year estimated useful life...Ch. 11 - Crowder Company acquired a tract of land...Ch. 11 - Susquehanna Company purchased an asset at the...Ch. 11 - Akron Incorporated purchased an asset at the...Ch. 11 - Albany Corporation purchased equipment at the...Ch. 11 - Utica Machinery Company purchases an asset for...Ch. 11 - In Year 1, Utica Machinery Company uses the asset...Ch. 11 - At the beginning of Year 1, Herkimer Co....Ch. 11 - At the end of Year 1, Herkimer Co. sells two...Ch. 11 - Buffalo, Inc., uses composite depreciation for its...Ch. 11 - Prob. 9RECh. 11 - Assume the same information as in RE11-3, except...Ch. 11 - Oneonta Co. owns equipment with a cost of 300,000...Ch. 11 - At the beginning of the current year, Andy Company...Ch. 11 - Prob. 13RECh. 11 - (Appendix 11.1) Auburn Company purchased an asset...Ch. 11 - Gruman Company purchased a machine for 220,000 on...Ch. 11 - Prob. 2ECh. 11 - Prob. 3ECh. 11 - Prob. 4ECh. 11 - Prob. 5ECh. 11 - Prob. 6ECh. 11 - Loban Company purchased four cars for 9,000 each...Ch. 11 - Wilcox Company acquires four machines that have...Ch. 11 - Lightning Delivery Company purchased a new...Ch. 11 - Prob. 10ECh. 11 - Prob. 11ECh. 11 - Prob. 12ECh. 11 - Bailand Company purchased a building for 210,000...Ch. 11 - Prob. 14ECh. 11 - On January 1, 2012, Vallahara Company purchased...Ch. 11 - Prob. 16ECh. 11 - Prob. 17ECh. 11 - Prob. 18ECh. 11 - Prob. 19ECh. 11 - Prob. 20ECh. 11 - Prob. 1PCh. 11 - Prob. 2PCh. 11 - Prob. 3PCh. 11 - Prob. 4PCh. 11 - Prob. 5PCh. 11 - Prob. 6PCh. 11 - Prob. 7PCh. 11 - Prob. 8PCh. 11 - During 2016, Ryel Companys controller asked you to...Ch. 11 - Prob. 10PCh. 11 - On January 1, 2011, Borstad Company purchased...Ch. 11 - Prob. 12PCh. 11 - Prob. 13PCh. 11 - Prob. 14PCh. 11 - Prob. 15PCh. 11 - Prob. 16PCh. 11 - Prob. 17PCh. 11 - Prob. 18PCh. 11 - Prob. 19PCh. 11 - Prob. 20PCh. 11 - Prob. 21PCh. 11 - Prob. 1CCh. 11 - Prob. 2CCh. 11 - Straight-Line and Composite Depreciation Portland...Ch. 11 - Depreciation continues to be one of the most...Ch. 11 - The following two statements concern depreciation:...Ch. 11 - Prob. 6C
Knowledge Booster
Background pattern image
Accounting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
SEE MORE QUESTIONS
Recommended textbooks for you
Text book image
Financial Accounting Intro Concepts Meth/Uses
Finance
ISBN:9781285595047
Author:Weil
Publisher:Cengage
Accounting for Derivatives_1.mp4; Author: DVRamanaXIMB;https://www.youtube.com/watch?v=kZky1jIiCN0;License: Standard Youtube License
Depreciation|(Concept and Methods); Author: easyCBSE commerce lectures;https://www.youtube.com/watch?v=w4lScJke6CA;License: Standard YouTube License, CC-BY