Question

On October 1, 2021, the Allegheny Corporation purchased equipment for $148,000. The estimated service life of the equipment is 10 years and the estimated residual value is $5,000. The equipment is expected to produce 260,000 units during its life.Required:Calculate depreciation for 2021 and 2022 using each of the following methods. Partial-year depreciation is calculated based on the number of months the asset is in service.

Answer 1

Missing word: "1. Straight line. 2. Double-declining balance. Depreciation rate(20%)"

1. Straight line depreciation

Annual Depreciation = Cost - Salvage / Estimated Useful Life (years)

Annual Depreciation = $143,000 / 10

Annual Depreciation = $14,300

Depreciation Expenses = Annual Depreciation * Fraction of Year

2021: Depreciation Expenses = 14300 * 3/12

Depreciation Expenses = $3575

2022: Depreciation Expenses = 14300 * 12/12

Depreciation Expenses = $14,300

2. Double-declining balance

Depreciation Expense = Beginning of period Book value * Depreciation rate(%) * Fraction of Year

2021: Depreciation Expense = $148000 * 20% 3/12

Depreciation Expense = $7400

Book Value = Beginning of period Book value - Accumulated Depreciation

Book Value = $148000 - $7400

Book Value = $140,600

2022: Depreciation Expense = $140,600 * 20% * 12/12

Depreciation Expense = $35,520

Book Value = Beginning of period Book value - Accumulated Depreciation

Book Value = $140,600 - $35,520

Book Value = $105,080