Part 2: Caleulation of Depreciation Expense (30 Points) Orchid Lake Company parc

Question

Part 2: Caleulation of Depreciation Expense (30 Points) Orchid Lake Company parchased new equipment for $8,100 on February 1, 2017. Other information is as follows The equipenent had a useful life of 3 years or 11,700 total hours. The equipment has a salvage value equal to $4,200 at the end of its useful life. Orchid Lake Company uses the calendar year as its fiscal year. Instructions: PLEASE SHOW YOUR WORK. a. Compute the depreciation expense for 2017 and 2018 using the straight-line deprociation method 2017 2018 Depreciation expense Computations: 2018: b. Compute the depreciation expense for 2017 and 2018 using the double-declining- balance depreciation method 2017 2018 Depreciation expense: Compatations: 2017: 2018: The equipment was used for 2,925 total hours in 2017 and for 3,510 total hours in 2018. Compute the depreciation expense for 2017 and 2018 using the units-of- production depreciation method. c. 2017 2018 Depreciation expense: Computations: 2017: 2018:

Explanation / Answer

Answer to Part a):

Using Straight Line Depreciation Method:
Depreciation Expense per year = (Cost – Salvage Value) / Useful Life
Depreciation Expense per year = (8,100 – 4,200) / 3
Depreciation Expense per year = $1,300

Depreciation Expense for Year 2017 = 1,300 * 11/12
Depreciation Expense for Year 2017 = $1,191.67

Depreciation Expense for Year 2018 = $1,300

Answer to Part b):

Using Double Declining Balance Depreciation Method:
Double Declining Depreciation Rate = 2 * Straight Line Depreciation Rate
Straight Line Depreciation Rate = 1/ Useful Life
Straight Line Depreciation Rate = 1 /3 = 33.33%

Double Declining Depreciation Rate = 2 * 33.33% = 66.67%

Depreciation Expense for 2017 = 8,100 * 66.67% * 11/12
Depreciation Expense for 2017 = $4,950.25

Since, Depreciation expense is more, Straight Line Depreciation method will be followed.
Depreciation Expense for Year 2017 = (8,100 – 4,200) / 3 * 11/12
Depreciation Expense for Year 2017 = $1,191.67

Depreciation Expense for Year 2018 = (8,100 – 4,200) / 3 = $1,300

Answer to Part c):

Using Units-of-Production Depreciation Method:
Depreciation Expense per Hour = (Cost – Salvage Value) / Total hours expected during Life
Depreciation Expense per Hour = (8,100 – 4,200) / 11,700
Depreciation Expense per Hour = $0.33

Depreciation Expense for 2017 = $0.33 * 2,925
Depreciation Expense for 2017 = $975

Depreciation Expense for 2017 = $0.33 * 3,510
Depreciation Expense for 2017 = $1,158.30

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