Question

[Fact Pattern #3] Nella Corporation, which computes depreciation to the nearest whole month, placed a new piece of equipment in operation on July 1, Year 1. It was expected to produce 400,000 units of product in its estimated useful life of 8 years. Total cost was $300,000; salvage value was estimated to be $30,000. Nella employs a calendar year for financial reporting purposes. Actual production for the past 3 years was as follows: Year 1 -- 34,000 units Year 2 -- 62,500 units Year 3 -- 58,400 units <A9> 2020 Gleim Publications Inc. Chapter 11a 012620 5 [20] (Refers to Fact Pattern 3) If Nella uses the double-declining-balance method of depreciation, the amount of depreciation computed (rounded to the nearest dollar) for this equipment for financial reporting purposes in Year 3 would be A. $49,219 B. $44,297 C. $42,188 D. $75,000 [Fact Pattern #4] For its first year of operations, Falkland Co. decided to use the composite method of depreciation and prepared the schedule of machinery owned presented in the opposite column. Estimated Estimated Total Cost Salvage Life in Value Years $550,000 $50,000 20 200,000 20,000 15 40,000 Machine X Machine Y Machine Z [21] (Refers to Fact Pattern 4) Falkland computes depreciation on the straight-line method. Based upon the information presented, the composite life of these assets (in years) should be A. 13.3 B. 16.0 C. 17.6 . 20.02

Answer 1

Solution [Fact pattern #3] Given , Nella corporation placed a new piece of equipment in operation on July 1, year 1. And Nella follows a calendar year for financial reporting purposes. Here, The new equipment (prece) used for 6 months in first financial year line, from y 1 °F to December 3,51) then, * computing wling the double - declining - the depreciation method : balance year $ 300000 1 original cost of an equipment Salvage value Estimated useful life $ 30000 8 years Depreciation rate = X100 useful life = I x 100 = 12.5% Double - declining balance formula - 2x cost of the anet e depreciation rate Here, it will be 2x12.5 % 2 x 12.5%. = 25% [double - declining | تلوو year 1 depriciation 6 months 12 months = original wst x double - declining x rate 300000254.* delete => $37500]

year 2 depreciation Depreciable cost for 2nd year is. =$300000 - $37500 => 262500 last year depreciation) then, 2nd year depreciation edahon - Depreciable x Derreriekle doubu duruing Cost rali - $262.500 X 25.) - $65625 year 3. depreciation Depreciable cost for 3rd year it. $262.500 - $65625 => $196875. (2nd year depreciation) then, 340 year depreciation - Depreciable. & cost double declining rali -$196875 X 254. - $ 49218.75 - fol., $49219 [rounded to nearest dollar 1 finally, the answer is A ., $49219. Note & under double declining method of depreciation be should not deducted from Salvage original value cost.

solution. [fact pattern Composite life - Total depreciation Cost Total depreciation pee year 1 - 720000 => 16 years $ 45000 Hence, the answer is 'B' 4., 16 years bu I for the above figures refer below working Notes table working Notes original Depreciable Assets salvage Volella) Depreciable Straight line life (years) Depreciation per CH) Year (51 = Co cast (1) cast (3) = (1 - 63 $ 500000 $ 500000 20 years $ 50000 20 Machine > $ 550000 = $ 25000 15 4180000 15 years $ 20000 $ 200000 $ 180000 Machine y => $ 12000 $40000 $ 40000 5 5 years Machine'z' $ 40000 => $8000 $ 790000 470000 $ 720000 $ 45.000
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