On January 1, 2016, Grayzka Enterprises, Inc., paid $225,100 for equipment used
ID: 2533866 • Letter: O
Question
On January 1, 2016, Grayzka Enterprises, Inc., paid $225,100 for equipment used in manufacturing automotive supplies. In addition to the basic purchase price, the company paid $300 transportation charges, $100 insurance for the equipment while in transit, $11,400 sales tax, and $3,100 for a special platform on which to place the equipment in the plant. Grayzka Enterprises, Inc., management estimates that the equipment will remain in service for five years and have a residual value of $20,000. The equipment will produce 50,000 units the first year, with annual production decreasing by 5,000 units during each of the next four years (i.e., 45,000 units in year 2; 40,000 units in year 3; and so on for a total of 200,000 units). In trying to decide which depreciation method to use, Grayzka Enterprises, Inc requested a depreciation schedule for each of the three depreciation methods (straight-line, units-of- production, and double-declining balance).Explanation / Answer
Purchase Price 225,100.00 Transportation Cost 300.00 Insurance 100.00 Sales Tax 11,400.00 Special Platform 3,100.00 Total Cost of Machine 240,000.00 Answer 1. Depreciation Rate (SL) = 1 / 5 Years = 20% Straight Line Depreciation Schedule Date Asset Cost Depreciation Rate Depreciable Cost Depreciation Expense Accumulated Depreciation Asset Book Value 1-Jan-16 240,000.00 - - - - 240,000.00 31-Dec-16 20% 220,000.00 44,000.00 44,000.00 196,000.00 31-Dec-17 20% 220,000.00 44,000.00 88,000.00 152,000.00 31-Dec-18 20% 220,000.00 44,000.00 132,000.00 108,000.00 31-Dec-19 20% 220,000.00 44,000.00 176,000.00 64,000.00 31-Dec-20 20% 220,000.00 44,000.00 220,000.00 20,000.00 Depreciable Cost = $240,000 (Cost) - $20,000 (Residual Value) Depreciable Cost = $220,000 Answer 2. Depreciation per Unit = $220,000 / 200,000 Units Depreciation per Unit = $1.10 per Units Units-of-Production Depreciation Schedule Date Asset Cost Depreciation per Unit Number of Units Depreciation Expense Accumulated Depreciation Asset Book Value 1-Jan-16 240,000 - - - - 240,000 31-Dec-16 1.10 50,000 55,000 55,000 185,000 31-Dec-17 1.10 45,000 49,500 104,500 135,500 31-Dec-18 1.10 40,000 44,000 148,500 91,500 31-Dec-19 1.10 35,000 38,500 187,000 53,000 31-Dec-20 1.10 30,000 33,000 220,000 20,000 Answer 3. DDB Rate = 20% (SL Depreciation Rate) X 2 DDB Rate = 40% Date Asset Cost DDB Rate Asset Book Value Depreciation Expense Accumulated Depreciation Asset Book Value 1-Jan-16 240,000 240,000 31-Dec-16 - 40% 240,000 96,000 96,000 144,000 31-Dec-17 - 40% 144,000 57,600 153,600 86,400 31-Dec-18 - 40% 86,400 34,560 188,160 51,840 31-Dec-19 - 40% 51,840 20,736 208,896 31,104 31-Dec-20 - 31,104 12,442 221,338 18,662
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