Garbo Company acquired equipment on January 1, 2013 for $70,000. It is estimated

Question

Garbo Company acquired equipment on January 1, 2013 for $70,000. It is estimated that the equipment will have a $5,000 salvage value at the end of its 5-year useful life. It is also estimated that the equipment will produce 100,000 units over its 5-year life.
Instructions
Answer the following independent questions.
1.   Compute the amount of depreciation expense for the year ended December 31, 2013, using the straight-line method of depreciation.
2.   If 16,000 units of product are produced in 2013 and 24,000 units are produced in 2014, what is the book value of the equipment at December 31, 2014? The company uses the units-of-activity depreciation method.
3.   If the company uses the double-declining-balance method of depreciation, what is the balance of the Accumulated Depreciation—Equipment account at December 31, 2015?

Explanation / Answer

1) (70000-5000)/5 = 13,000

2) Net Value = 70000-5000 = 65,000
Dep per unit = 65000/100000 = .65/unit
Dep for 2013 = 16000*.65 = 10,400
Dep for 2014 = 24,000*.65 = 15,600

Closong value as on Dec 31, 2014 = 65000 - 10400 - 15600 = 39,000

3) double-declining-rate = double of 20%(5 years) = 40%

Dep 2013 = (70000-5000)*40% = 26,000
WDV 2013 = 65000-26000 = 39000

Dep 2014 = 39000*40% = 15,600
WDV 2014 = 39000-15600 = 23,400

Dep 2015 = 23400*40% = 9,360
WDV 2015 = 23400-9,360 = 14040

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