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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Depreciation Methods Winsey Company purchased equipment on January 2, 2019, for $700,000. The equipment has the following characteristics:

Chapter 11, Problem 1P, Depreciation Methods Winsey Company purchased equipment on January 2, 2019, for 700,000. The

During 2019 and 2020, the company used the machine for 4,500 and 5,500 hours, respectively, and produced 40,000 and 60,000 units, respectively.

Required:

Compute depreciation expense for 2019 and 2020 under each of the following methods:

  1. 1. straight-line method
  2. 2. activity method based on hours worked (round the depreciation rate per hour to 2 decimal places)
  3. 3. activity method based on units of output (round the depreciation rate per unit to 2 decimal places)
  4. 4. sum-of-the-years’-digits method
  5. 5. double-de dining-balance method
  6. 6. 150%-declining-balance method
  7. 7. Next Level If Winsey used a service life of 16 years, 80,000 hours, or 750,000 units of output, what would be the effect on depreciation expense under the straight-line, sum-of-the-years’-digits, and declining-balance depreciation methods? Round your answers to the nearest dollar.

1.

To determine

Calculate the depreciation expense of Company W for 2019 and 2020 under straight line method.

Explanation

Depreciation expense: Depreciation expense is a non-cash expense, which is recorded on the income statement reflecting the consumption of economic benefits of long-term asset on account of its wear and tear or obsolesces.

Straight-line depreciation method: The depreciation method which assumes that the consumption of economic benefits of long-term asset could be distributed equally throughout the useful life of the asset is referred to as straight-line method.

Calculate the depreciation expense of Company W under straight line method as follows:

Deprec

2.

To determine

Calculate the depreciation expense of Company W for 2019 and 2020 under activity method based on hours worked.

3.

To determine

Calculate the depreciation expense of Company W for 2019 and 2020 under activity method based on units of output.

4.

To determine

Calculate the depreciation expense of Company W for 2019 and 2020 under sum-of years’ digit method.

5.

To determine

Calculate the depreciation expense of Company W for 2019 and 2020 under the double-declining balance method.

6.

To determine

Calculate the depreciation expense of Company W for 2019 and 2020 under the 150%-declining balance method.

7.

To determine

Identify the effect of the depreciation expense under the straight line, sum of the year’s digit, and declining balance methods, assume Company W used a service life of 16 years, 80,000 hours, or 75,000 units of output.

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