Question

Use the following information for the Quick Studies below. (Algo) Skip to question [The following information applies to the questions displayed below.] Equipment costing $72,000 with a 4-year useful life and an estimated $12,000 salvage value is acquired and started operating on January 1. The equipment is estimated to produce 5,000 units of product during its life. It produced 750 units in the first year. QS 8-8 (Algo) Recording depreciation journal entries LO P1 Record the journal entries for equipment depreciation for the first year under straight-line, units-of-production, and double-declining-balance.

a. Record depreciation for the first year under straight-line
b. record depreciation for the first year under units-of-production.
c. Record depreciation for the first year under double-declining-balance.

Answer 1

Depreciation for the first year is calculated using the straight-line, units-of-production, and double-declining-balance methods, with journal entries to reflect the varying expense amounts for each approach: $15,000, $9,000, and $36,000 respectively.

Step-by-step explanation:

To record the depreciation of equipment using different methods, we start by calculating the expense for each method.

Annual depreciation = (Cost - Salvage value) / Useful life
= ($72,000 - $12,000) / 4 years
= $15,000 per year
Journal Entry: Debit Depreciation Expense $15,000; Credit Accumulated Depreciation $15,000.

Depreciation per unit = (Cost - Salvage value) / Total units of production
= ($72,000 - $12,000) / 5,000 units
= $12 per unit
Depreciation for the year = Depreciation per unit * Units produced in the year
= $12 * 750
= $9,000
Journal Entry: Debit Depreciation Expense $9,000; Credit Accumulated Depreciation $9,000.

Depreciation rate = (100% / Useful life) * 2
= (100% / 4) * 2
= 50% per year
First-year depreciation = Depreciation rate * Book value at beginning of year
= 50% * $72,000
= $36,000
Journal Entry: Debit Depreciation Expense $36,000; Credit Accumulated Depreciation $36,000.

Note: For the double-declining balance method, only record the first year as subsequent years would use a different book value that considers previously accumulated depreciation.