Crispy Fried Chicken bought equipment on January 2, 2016, for $ 18 comma 000. The equipment was expected to remain in service
for four years and to perform 3 comma 000 fry jobs. At the end of the equipment's useful life, Crispy estimates that its residual value will be $ 3 comma 000. The equipment performed 300 jobs the first year, 900 the second year, 1 comma 200 the third year, and 600 the fourth year. Requirements 1. Prepare a schedule of depreciation expense, accumulated depreciation, and book value per year for the equipment under the three depreciation methods. Show your computations. Note: Three depreciation schedules must be prepared. 2. Which method tracks the wear and tear on the equipment most closely?
1 answer:
Answer:
Please check the attached image for the depreciation schedule
2. Units of production method
Explanation:
Book value in year 1 = Cost of asset - Depreciation expense of year 1
Book value in year in subsequent years = previous book value - that year's depreciation expense
Accumulated depreciation is sum of deprecation expense
Straight line depreciation expense = (Cost of asset - Salvage value) / useful life
($18,000 - $3,000) / 4 = $3,750
Depreciation expense each year of the useful life is $3,750
Depreciation expense using the double declining method = Depreciation factor x cost of the asset
Deprecation factor = 2 x (1/useful life) = 0.5
Depreciation expense in year 1 = 0.5 x $18,000 = $9,000
Book value = $18,000 - $9,000 = $9,000
Depreciation expense in year 2 = 0.5 × $9,000 = $4,500
Book value = $9,000 - $4,500 = $4,500
Depreciation expense in year 3 = 0.5 x $4,500 = $2250
Book value = $4,500 - $2250 = $2250
Depreciation expense in year 4 = 0.5 × $2250 = $1125
Depreciation expense using the unit of production method =( Total production in the year/ total productive capacity) × (cost of asset - Salvage value)
Depreciation expense in year 1 = ($18,000 - $3,000) x (300 / 3000) = $1,500
Depreciation expense in year 2 =18,000 - $3,000) x (900 / 3000) = $4,500
Depreciation expense in year 3 = (18,000 - $3,000) x (1200 / 3000) = $6,000
Depreciation expense in year 3 = (18,000 - $3,000) x (600 / 3000) = $3,000
The Units of production method tracks wear and tear accurately because deprecation depends on the production each year.
I hope my answer helps you
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