REPORTING PROPERTY, PLANT, AND EQUIPMENT PROBLEM: The Archer Farms Company purch

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:

a. Straight line method – Y3:

b. Straight line method – Y4:

c. Double-declining-balance method – Y3:

d. Double-declining-balance method – Y4

e. Units-of-production method – Y3:

f. Units-of-production method – Y4:

Explanation / Answer

a) Straight line dep = (440000-40000)/8 = 50000

a. Straight line method – Y3: 50000

b. Straight line method – Y4: 50000

Double decline rate :

Straight line rate = 100/8 = 12.5%

Double decline rate = 12.5*2=25%

c. Double-declining-balance method – Y3: (440000*25%) = 110000

d. Double-declining-balance method – Y4 (440000*75%*25%) = 82500

Unit of production :

Dep rate = (440000-40000)/100000 = 4 per unit

e. Units-of-production method – Y3: 12000*4 = 48000

f. Units-of-production method – Y4:9000*4 = 36000

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