Golden Rams Company acquired equipment on January 1, 2017 for $43,500. The equip

Question

Golden Rams Company acquired equipment on January 1, 2017 for $43,500. The equipment has an estimated useful life of 10 years or 385,000 units of product with a salvage value of $5,000. During 2017 the equipment produced 25,000 units and during 2018 the equipment produced 32,500 units. Compute the "depreciation expense" for 2017 and 2018 under each of the following methods. Depreciation Expense 1. Straight-line 2017 2018 Depreciation Expense 2· Units-of-Production 2017 2018 Depreciation 3. Double-declining Balance Expense 2017 2018 Section D: Change in Estimates ASU Company purchased a depreciable asset for $500,000 on January 1, 2015. The estimated salvage value is $50,000, and the estimated useful life is 10 years. The straight-line method is used for depreciation. At the beginning of 2017, ASU changed its estimates of total useful life to 7 years and changed the salvage value to $60,000. What is the 2017 depreciation expense?

Explanation / Answer

Answer A.

Straight-Line:

Cost of Equipment = $43,500
Estimated Life = 10 years
Salvage Value = $5,000

Depreciable Base = Cost of Equipment - Salvage Value
Depreciable Base = $43,500 - $5,000
Depreciable Base = $38,500

Straight-line Depreciation Rate = 1/Useful Life
Straight-line Depreciation Rate = 1/10
Straight-line Depreciation Rate = 10%

Annual Depreciation = Depreciable Base * Straight-line Depreciation Rate
Annual Depreciation = $38,500 * 10%
Annual Depreciation = $3,850

Depreciation Expense:
2017 = $3,850
2018 = $3,850

Units-of Production:

Cost of Equipment = $43,500
Salvage Value = $5,000
Estimated Useful Life = 385,000 units

Depreciation per unit = (Cost of Equipment - Salvage Value) / Estimated Useful Life
Depreciation per unit = ($43,500 - $5,000) / 385,000
Depreciation per unit = $0.10

Depreciation 2017 = $0.10 * 25,000
Depreciation 2017 = $2,500

Depreciation 2018 = $0.10 * 32,500
Depreciation 2018 = $3,250

Double-declining Balance:

Cost of Equipment = $43,500

Straight-line Depreciation Rate = 10%
Double-declining Balance Rate = 2*/10% = 20%

Depreciation 2017 = $43,500 * 20%
Depreciation 2017 = $8,700

Book Value at the end of 2017 = $43,500 - $8,700
Book Value at the end of 2017 = $34,800

Depreciation 2018 = $34,800 * 20%
Depreciation 2018 = $6,960

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