1. Aliquippa Co. purchased equipment at the beginning of 2017 for $60,000. In ad
ID: 2573384 • Letter: 1
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1. Aliquippa Co. purchased equipment at the beginning of 2017 for $60,000. In addition, Aliquippa paid $2,000 for delivery of the equipment to its plant and $1,000 for installation of the equipment. The equipment has an estimated residual value of $7,000 and an estimated life of seven years or 70,000 hours of operation. Aliquippa is looking at alternative depreciation methods for the equipment. Calculate the following: A. The depreciation expense for the year 2017 using the straight-line depreciation method. The total accumulated depreciation at December 31, 2018, using the units-of-production depreciation method. Assume that the equipment is operated for 15,000 hours in 2017 and 12,000 hours in 2018 B. The book value of the equipment at December 31, 2017, using the double-declining-balance depreciation method C. D. Which of the above methods is considered accelerated? What are the advantages of using an accelerated depreciation method as compared to the straight-line method for lowering taxes early in the life of the equipment? E. 2. Tasty Catering purchased a van on January 1, 2015, for $48,000. The company decided to depreciate the van over a five-year period using the straight-line method. The company estimated its residual value at $3,000. Show how the costs should be presented on Tasty's balance sheet and income statement for the full year ended June 30, 2017·Label the statements properly 3. Assume that Banker Company purchased a new machine on January 1, 2017, for $96,000. The machine has an estimated useful life of nine years and a residual value of $6,000. Banker has chosen to use the straight-line method of depreciation. On January 1,2019, Banker discovered that the machine would not be useful beyond December 31, 2022, and estimated its value at that time to be $4,000 Required 1. Calculate the depreciation expense, accumulated depreciation, and book value of the asset for each year 2017 to 2022 2. Was the depreciation recorded in 2017 and 2018 wrong? If so, why was it not corrected?Explanation / Answer
Answer 1. Total Cost of Equipment Cost of Equipment 60,000 Delivery Charges 2,000 Installation Cost 1,000 Total Cost of Equipment 63,000 Answer 1-A. Straight Line Method Dep. Per annum = ($63,000 - $7,000) / 7 Years Dep. Per annum = $8,000 per annum Dep. Exp - 2017 = $8,000 Answer 1-B. Depreciation per hour of operation = ($63,000 - $7,000) / 70,000 hrs Depreciation per hour of operation = $0.80 per hour Year Operating Hrs Dep. Per Hour Total Dep. Accumulated Dep. 2017 15,000 0.80 12,000 12,000 2018 12,000 0.80 9,600 21,600 Total Accumulated Dep. - 2018 = $21,600 Answer 1-C. Rate of Dep. Under DDB = 2 X 14.28571 (Rate of Dep. Under Straight Line Method) Rate of Dep. Under DDB = 28.57% p.a (Approx.) Cost of Machine 63,000 Dep. - 2017 - $63,000 X 28.57% 18,000 WDV as on Dec 31, 2017 45,000 Answer 1-D. Double Declining Method is consodered accelerated method of depreciation. Answer 1-E. In DDB metthod, depreciation is more charged in the early years of life (As shown above). If more depreciation is charged in the early years, the income of the early years is lower than the income in the straight line method. So, taxes will be lower in the early life of the assets in DDB method
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