Question & Answer: In excel format, please answer the following question:…..

In excel format, please answer the following question:

Question #4

On January 1^st, a company purchased equipment which will fabricate plastic parts automatically. This equipment costs $81,000 and is expected to have an economic/useful life of three (3) years. This equipment is expected to produce 7,000 parts in year 1, 10,000 parts in year 2, then 8,000 parts in year 3. At the end of year 3, the estimated salvage value/residual value of the equipment is $6,000.

Part ( a )

Complete the following table using double-declining-balance (DDB) depreciation:

Beginning Ending

Year Book Value DDB Factor Depreciation Exp. Book Value

1 __________ __________ ____________ __________

2 __________ __________ ____________ __________

3 __________ __________ ____________ __________

Part ( b )

What is the annual adjusting entry (DR/CR) when straight-line depreciation is used, assuming adjusting entries are done only at the end of the year?

Part ( c )

What is the ending book value at the end of each year when the units-of-output depreciation method is used?

Year 1 ending book value __________

Year 2 ending book value __________

Year 3 ending book value __________

Expert Answer

	Purchase price	81000
	Salvage value	6000
	Useful life	3	years

	Depreciation per year	$81000-$6000/3 = $25000
	As per straightline method

	Straight line rate = $25000/$81000*100 = 30.86%
	Double declining balance rate = 2*30.86 = 61.72%

a)	Year	Opening balance	DDB factor	Depreciation expense	Closing balance
	1	81000	61.72%	49993.2	31006.8
	2	31006.80	61.72%	19137.40	11869.40
	3	11869.40	61.72%	7325.80	4543.61

			Total	76456.39

b)	Annual adjusting entry

	Depreciation as per Straightline method	75000
	Depreciation as per DDB method	76456.39

	Difference	1456.39

	Depreciation expense	$75000
	Accumulated depreciation		$75000

c)	Purchase price	81000
	Salvage value	6000
	Depreciable amount	75000
	Total units of production	25000 units

	Depreciation per unit	75000/25000 = 3 per unit

	Year	opening value	Number of units	Depreciation expense@3 per unit	Closing value
	1	81000	7000	21000	60000
	2	60000	10000	30000	30000
	3	30000	8000	24000	6000

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