Lord Company purchased a machine on January 2, 2019, for $70,000. The machine had an expected residual value of $10,000, an expected life of 8 years or 24,000 hours, and a capacity to produce 100,000 units. During 2019, Lord produced 12,000 units in 2,500 hours. In 2020, Lord produced 15,000 units in 3,000 hours. Required: 1 a. Prepare a schedule showing depreciation expense for 2019 and 2020 and the book value of the asset at the end of 2019 and 2020 for the Straight-line method. b. Prepare a schedule showing depreciation expense for 2019 and 2020 and the book value of the asset at the end of 2019 and 2020 for the activity method based on hours worked. c. Prepare a schedule showing depreciation expense for 2019 and 2020 and the book value of the asset at the end of 2019 and 2020 for the activity method based on units of output
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Lord Company purchased a machine on January 2, 2019, for $70,000. The machine had an expected residual value of $10,000, an expected life of 8 years or 24,000 hours, and a capacity to produce 100,000 units. During 2019, Lord produced 12,000 units in 2,500 hours. In 2020, Lord produced 15,000 units in 3,000 hours.
Required:
1 a. Prepare a schedule showing
b. Prepare a schedule showing depreciation expense for 2019 and 2020 and the book value of the asset at the end of 2019 and 2020 for the activity method based on hours worked.
c. Prepare a schedule showing depreciation expense for 2019 and 2020 and the book value of the asset at the end of 2019 and 2020 for the activity method based on units of output.
This Numerical has covered the concept of Depreciation Accounting.
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