Question

Straight-Line and Units-of-Production Methods Assume that Sample Company purchased factory equipment on January 1, 2016, for $35,000. The equipment has an estimated life of five years and an estimated residual value of $3,500. Sample's accountant is considering whether to use the straight-line or the units-of-production method to depreciate the asset. Because the company is beginning a new production process, the equipment will be used to produce 10,000 units in 2016, but production subsequent to 2016 will increase by 10,000 units each year. Required: 1. Calculate the depreciation expense, accumulated depreciation, and book value of the equipment under both methods for each of the five years of its life. Enter all amounts as positive values. Straight-line method: Annual Year Depreciation Accumulated Depreciation Book Value 2016 $ 2017 2018 2019 2020 -production method: Annual Accumulated Book Depreciation Depreciation Value

Answer 1

Straight line method :

Depreciation expense = $35,000-3,500 / 5 = $6,300

Year	Annual depreciation	Accumulated depreciation	Book value
2016	$6,300	$6,300	$28,700 (35,000-6,300)
2017	6,300	12,600	22,400 (35,000-12,600)
2018	6,300	18,900	16,100 (35,000-18,900)
2019	6,300	25,200	9,800 (35,000-25,200)
2020	6,300	31,500	3,500 (35,000-31,500)

Units of production method:

Depreciation rate per year = $35,000-3,500 / 150,000 = $0.21

Year	Annual depreciation	Accumulated depreciation	Book value
2016	$2,100 (10,000*$0.21)	$2,100	$32,900 (35,000-2,100)
2017	4,200 (20,000*$0.21)	6,300	28,700 (35,000-6,300)
2018	6,300 (30,000*$0.21)	12,600	22,400 (35,000-12,600)
2019	8,400 (40,000*$0.21)	21,000	14,000 (35,000-21,000)
2020	10,500 (50,000*$0.21)	31,500	3,500 (35,000-31,500)