Question

On january 1, 2024, the allegheny corporation purchased equipment for $115,000. the estimated service life of the equipment is 10years and the estimated residual value is $5,000. the equipment is expected to produce 220,000 units during its life.

required:
calculate depreciation for 2024 and 2025 using each of the following methods. round all computations to the nearest dollar.
1. straight line
2. double-declining balance
3. units of production (units produced in 2024, 30,000; units produced in 2025, 25,000)

Answer 1

The Allegheny Corporation's equipment depreciation for 2024 is $11,000 using Straight Line method, $23,000 with Double-Declining Balance, and $15,000 based on Units of Production. For 2025, the depreciation is $11,000 with Straight Line, $18,400 with Double-Declining Balance, and $12,500 using Units of Production.

Step-by-step explanation:

The Allegheny Corporation's equipment's depreciation for 2024 and 2025 can be calculated using three different methods: Straight Line, Double-Declining Balance, and Units of Production. The formulas for each method are as follows:

(Cost - Residual Value) / Useful Life = (115,000 - 5,000) / 10 = 11,000 per year

Depreciation for 2024: $11,000

Depreciation for 2025: $11,000

First, determine the Straight Line rate by dividing 1 by the Useful Life (10 years in this case), which gives us 10%. Then, we double it for the Double-Declining method, resulting in 20%. Apply the rate to the book value at the beginning of the year.

Depreciation for 2024: $115,000 * 20% = $23,000

For 2025, the new book value is $115,000 - $23,000 = $92,000, so:

Depreciation for 2025: $92,000 * 20% = $18,400

The cost per unit is computed as: (Cost - Residual Value) / Estimated Total Production = (115,000 - 5,000) / 220,000 = $0.50 per unit. Multiply the cost per unit by the number of units produced in the year.

Depreciation for 2024 (30,000 units): 30,000 * $0.50 = $15,000

Depreciation for 2025 (25,000 units): 25,000 * $0.50 = $12,500