Question

E6-10 (modified)

Exact Photo Service purchase a new color printer at the beginning of 2019 for $28,000. The printer is expected to have a four-year useful life and a $3,500 salvage value. The expected print production is estimated at 1,500,000 pages. Actual print production for the four years was as follows:

Year	Pages Printed
2018	390,000
2019	410,000
2020	400,000
2021	300,000

The printer was sold at the end of 2021 for $1,650.

1. Compute the depreciation expense, accumulated depreciation and book value each year of the four years using the straight-line method.

2. Compute the depreciation expense, accumulated depreciation and book value each year of the four years, using the units-of-production method.

3. Calculate the amount of gain or loss from the sale of the asset.

4. Record the 2021 depreciation expense and sale of the printer in the horizontal statements model for both the straight-line and units-of-production methods:

Event	Assets			Liab	Equity	Rev	Exp	Net Inc.	Cash Flow
	Cash	Printer	Accum. Depr.
Straight-line Method
2021 Depreciation
Sale of Printer
Units-of-production Method
2021 Depreciation
Sale of Printer

Answer 1

Straight line Depreciation = (Original Value - Salvage Value) / Useful life
= ($28000-3500)/4 = $6125 per year

Year	Depreciation Expense	Accumulated Depreciation	Book Value
2018	$                6,125	$             6,125	$         21,875
2019	$                6,125	$           12,250	$         15,750
2020	$                6,125	$           18,375	$            9,625
2021	$                6,125	$           24,500	$            3,500
Total	$              24,500

Units of Production Method = (Original Value - Salvage Value) / Total Capacity
= ($28000-3500)/1500000 per page

Year	Pages Printed	Depreciation Expense	Accumulated Depreciation	Book Value
2018	390000	$             6,370	$            6,370	$          21,630
2019	410000	$             6,697	$         13,067	$          14,933
2020	400000	$             6,533	$         19,600	$             8,400
2021	300000	$             4,900	$         24,500	$             3,500
Total	1500000	$           24,500

Book Value at end of 2021 = $3500
Loss from sale of asset = $3500-1650 = $1850

Straight line

	Cash	Printer	Acc Dep	Equity	Rev	Exp	Net Income
2021 Dep			$            6,125	$           -6,125		$             6,125	$           -6,125
Sale	$                1,650	$         -28,000	$        -24,500	$           -1,850		$             1,850	$           -1,850

Units of Production

	Cash	Printer	Acc Dep	Equity	Rev	Exp	Net Income
2021 Dep			$            4,900	$           -4,900		$             4,900	$           -4,900
Sale	$                1,650	$         -28,000	$        -24,500	$           -1,850		$             1,850	$           -1,850