Question

Sabel Co. purchased assembly equipment for $780,000 on January 1, Year 1.

The equipment is expected to have a useful life of 260,000 miles and a salvage value of $26,000. Actual mileage was as follows:

Year 1	72,000
Year 2	69,000
Year 3	58,000
Year 4	49,000
Year 5	16,000

Required

1. Compute the depreciation for each of the five years, assuming the use of units-of-production depreciation.
2. Assume that Sabel earns $236,000 of cash revenue during Year 1. Record the purchase of the equipment and the recognition of the revenue and the depreciation expense for the first year in the following financial statements model.
3. Assume that Sabel sold the equipment at the end of the fifth year for $27,200. Calculate the amount of gain or loss on the sale.

Answer 1

a Units-of-Production Depreciation Schedule Depreciation for the year Asset Depreciation Total miles Depreciation Accumulated Book Date X Cost rate per mile usage Expense Depreciation value Year 1 $780,000 $780,000 Year 1 $2.90 X 72,000 $208,800 $208,800 $571,200 Year 2 $2.90 x 69,000 $200,100 $408,900 $371,100 Year 3 $2.90 X 58,000 $168,200 $577,100 $202,900 Year 4 $2.90 X 49,000 $142,100 $719,200 $60,800 Year 5 $2.90 X 12,000 $34,800 $754,000 $26,000 Depreciable cost = Cost of asset - Savage value In year 5 the miles are adjusted to show salvage value as closing book value Depreciation per mileage Total Depreciable cost Total miles $754,000 260,000 per mile $2.90 b Financial Statement model is not given in question Hence it is given in below accounting equation format Balance Sheet Income Statement Stockholders' Equity Liabilities + Revenue Minus (-) Expenses + = Assets $780,000 $780,000 $236,000 -$208,800 $27,200 = + $236,000 + $236,000 $208,800 $27,200 - $208,800 - $208,800 + $236,000 Sale value of Equipment Book value of Equipment Gain on sale of Equipment $27,200 $26,000 $1,200