Business Finance
Book value accounting problem

Question Description

I don’t understand this Accounting question and need help to study.

i just need help with requirement 3 part a. here are pics u will need

http://imgur.com/wPk5fQA

http://imgur.com/DiV6wpC

pic 1 is the info you need to solve the problem. pic 2 is the problem that needs to be solved

please show how u got the answer

thanks

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Final Answer

Cost = $42,000

Estimated life = 5 years (or) 200,000 hours

Salvage hours = $2,000

Company A: Straight-line depreciation

Depreciation expense every year = (Cost – Salvage value)/Estimated life

( ($42,000 - $2,000)/5 years

( $8,000 per year

Therefore, Depreciation expense for:

2008: $8,000

2009: $8,000

2010: $8,000

2011: $8,000

2012: $8,000

Company-B: Double-declining balance method


Depreciation expense = Beginning of the year balance x Double-declining rate

Double declining rate = Straight line rate x 2 = 20% (for 5 years life) x 2 = 40%

2008: $42,000 x 40% ( $16,800

2009: ($42,000 - $16,800) x 40% ( $10,080

2010: (42,000-16,800-10,080) x 40% ( $6,048

2011: (42,000-16,800-10,080-6,048) x 40% ( 3,628.80

2012: (42,000-16,800-10,080-6,048-3,628.80) x 40% + Adjustment ( $3,443.20

Note: The actual calculation in the last year works out to $2,177.28. But the net book value at the end of Year 5 should be equal to its salvage cost, $2,000. During the 1st 4 years, the total depreciation expense was 16,800+10,080+6,048+3,628.80 ( 36,556.80. The balance amount to be depreciated in year 5 would be $40,000 - $36,558.80 ( $3,443.20

Company C: Units of production method

Depreciation expense per hour = ($42,000 - $2,000)/200,000 hours ( $0.20 per hour

Depreciation expense for:

2008: 50,000 hours x $0.20 per hour ( $10,000

2009: 55,000 hours x $0.20 per hour ( $11,000

2010: 40,000 hours x $0.20 per hour ( $8,000

2011: 44,000 hours x $0.20 per hour ( $8,800

2012: 31,000 hours x $0.20 per hour – Adjustment ( $2,200

Note: The actual calculation for 2012 is $6,200. But the book value should not go below the salvage value. The total depreciation expense charged till 2011 works out to $37,800 (10,000 + 11,000 + 8,000 +8,800). The balance to be depreciated is $2,200 (40,000 – 37,800).


hinanoureen (1599)
UT Austin

Anonymous
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