REPORTING PROPERTY, PLANT, AND EQUIPMENT PROBLEM: The Archer Farms Company purch
ID: 2464649 • Letter: R
Question
REPORTING PROPERTY, PLANT, AND EQUIPMENT PROBLEM: The Archer Farms Company purchased equipment on January 1, Y3, for $440,000. The useful life was estimated at eight years, with salvage value at the end of that time of $40,000. The machine has an estimated useful life in productive output of 100,000 units. Actual output was 12,000 units in Y3 and 9,000 units in Y4. Compute the depreciation expense for each of the years Y3 and Y4:
Q11. Straight line method – Y3:
A. $55,000 B. $52,800 C. $50,000 D. $40,000 E. $38,350.65
Q12. Straight line method – Y4:
A. $110,000 B. $80,000 C. $50,000 D. $40,000 E. $38,350.65
Q13. Double-declining-balance method – Y3:
A. $110,000 B. $100,000 C. $90,000 D. $50,000 E. $40,000
Q14. Double-declining-balance method – Y4:
A. $110,000 B. $100,000 C. $85,000 D. $82,500 E. $50,000
Q15. Units-of-production method – Y3:
A. $52,800 B. $48,000 C. $36,000 D. $12,000 E. $9,000
Q16. Units-of-production method – Y4:
A. $48,000 B. $39,600 C. $36,000 D. $12,000 E. $9,000
Explanation / Answer
Workings
a) Straight Line Method depreciation per year
= (Cost - salvage value)/ number of years of useful life
= ($440000 - $40000) / 8 = $50000
b) Rate of depriciation in double declining method
= 2 * (1/Number of useful life) * 100
= 2*(1/8)*100 = 25% per year
c) Depreciation per unit of production
= (Cost - salvage value) / number of units produced
= ($440000 - $40000) / 100000 units
= $4 per unit
Q. 11)
Depreciation = $50000
Q12)
Deprciation = $50000
Q13)
Depreciation = (cost of the asset - accumulated depreciation)*rate of depreciation
= ($440000 - 0) * 25% =$440000*25% = $110000
Q 14)
Depreciation = (cost of the asset - accumulated depreciation)*rate of depreciation
= (440000 - 110000) * 25% = $82500
Q15) Depreciation
= Number of units produced during the year 8 depreciation rate per year
= 12000 units * $4/unit = $48000
Q17)
Depreciation
= Number of units produced during the year 8 depreciation rate per year
= 9000 * $4/year = $36000
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