Question

On January 1, 2021, the Allegheny Corporation purchased equipment for $115,000. The estimated service life of the equipment is 10 years and the estimated residual value is $5,000. The equipment is expected to produce 220,000 units during its life. Required: Calculate depreciation for 2021 and 2022 using each of the following methods.Assume instead the equipment was purchased on October 1, 2021. Calculate depreciation for 2021 and 2022 using each of the two methods. Partial-year depreciation is calculated based on the number of months the:

Answer 1

Solution:

Straight-Line Depreciation

Choose Numerator: / Choose Denominator = Annual Depreciation Expense

Cost minus Salvage / Estimated Useful Life (years) = Depreciation Expense

$110,000 / 10 = $11,000

Depreciation Expense

2016            $11,000

2017            $11,000

Sum-of-the-years' digits depreciation

Depreciable Base x Rate per Year = Depreciation Expense

2016 $110,000 x 10/55 = $20,000

2017 $110,000 x 9/55 = $18,000

Depreciation for the Period End of Period

Annual Period Beginning of Period Book Value Depreciation Rate Depreciation Expense Accumulated Depreciation Book Value

2016        $115,000 20%      $23,000    $23,000   $92,000

2017         $92,000 20%     $18,400     $41,400     $73,600

Depreciation for the Period End of Period

Annual Period Beginning of Period Book Value Depreciation Rate Depreciation Expense Accumulated Depreciation Book Value

2016        $115,000 15%     $17,250    $17,250   $97,750

2017         $97,750 15%     $14,663     $31,913    $83,087

Select formula for Units of Production Depreciation:

(Cost - Salvage) / Total units of production

Calculate 2016 depreciation expense:

Depreciation per unit rate $0.50

Units produced in 2016 30,000

Depreciation in 2016 $15,000

Calculate 2017 depreciation expense:

Depreciation per unit rate $0.50

Units produced in 2017 25,000

Depreciation in 2017 $12,500