Answer:
Purity Ice Cream Company
a. Depreciation Schedule, using straight-line method:
Cost Depreciation Accumulated Net Book
Expense Depreciation Value
Year 1 $9,000 $2,000 $2,000 $7,000
Year 2 $9,000 $2,000 4,000 5,000
Year 3 $9,000 $2,000 6,000 3,000
Year 4 $9,000 $2,000 8,000 1,000
b. Depreciation Schedule, using unit of production method:
Cost Depreciation Accumulated Net Book
Expense Depreciation Value
Year 1 $9,000 $2,750 $2,750 $6,250
Year 2 $9,000 $1,900 4,650 4,350
Year 3 $9,000 $1,600 6,250 2,750
Year 4 $9,000 $1,750 8,000 1,000
Explanation:
a) Data and Calculations:
Cost of ice cream maker = $9,000
Estimated useful life = 4 years
Residual value = $1,000
Depreciable amount = $8,000 ($9,000 - $1,000)
Annual depreciation (Straight-line method) = $2,000 ($8,000/4)
Estimated productive life the machine = 16,000 hours
Annual usage: Depreciation Expense
Year 1 5,500 hours $2,750
Year 2 3,800 hours 1,900
Year 3 3,200 hours 1,600
Year 4 3,500 hours 1,750
Total 16,000 hours $8,000
Depreciation rate per hour = $0.50 ($8,000/16,000)
