3. Depreciation Computation and Terminology. On January 1, 2009, AWRY Corp. purc
ID: 2374894 • Letter: 3
Question
3. Depreciation Computation and Terminology. On January 1, 2009, AWRY Corp. purchased equipment costing $45,000. It has a useful life of 3 years or 30,000 units and a residual value of $3,000. The equipment produced 12,000 units in 2009, 11,000 units in 2010 and 7,000 units in 2011.
a. Using straight-line depreciation, what is the balance of accumulated depreciation at December 31,
2010?
b. Using units-of-production, what is the depreciation expense for 2009?
c. Using double declining balance, what is the book value at December 31, 2011?
Explanation / Answer
3. Depreciation Computation and Terminology. On January 1, 2009, AWRY Corp. purchased equipment costing $45,000. It has a useful life of 3 years or 30,000 units and a residual value of $3,000. The equipment produced 12,000 units in 2009, 11,000 units in 2010 and 7,000 units in 2011.
a. Using straight-line depreciation, what is the balance of accumulated depreciation at December 31,
2010?
Straight line depreciation = (45,000 – 3,000)/3 = 14,000 per year
At December 31, 2010, two years have passed with 14,000 depreciation each year, so the accumulated depreciation is 14,000*2 = 28,000.
Answer: 28,000.
b. Using units-of-production, what is the depreciation expense for 2009?
(45,000 – 3,000)/30,000 = 1.40 per unit. Since 12,000 units were produced in 2009, depreciation expense for 2009 is 1.40*12,000 = 16,800.
Answer: 16,800.
c. Using double declining balance, what is the book value at December 31, 2011?
Since useful life is 3 years, straight line rate is 100%/3 = 33.33%. DDB rate is twice straight line rate, so DDB rate is 33.33%*2 = 66.67%.
First year depreciation = 45,000*0.6667 = 30,000. Book value at end of 1st year is 15,000
Second year depreciation = 15,000*0.6667 = 10,000. Book value at end of 2nd year is 5,000.
Third year depreciation is 2,000 because the book value cannot go below residual value, so the ending book value on December 31, 2011 is 3,000.
Answer: 3,000
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