2 285 points value E97 Computing Depreciation under Alternat

2. 2.85 points value: E9-7 Computing Depreciation under Alternative Methods [LO 9-3] Tails Corporation purchased and installed electronic payment equipment at its drive-in restaurants in San Marcos, TX, at a cost of $56,700. The equipment has an estimated residual value of $3,000. The equipment is expected to process 264,000 payments over its three-year useful life. Per year, expected payment transactions are 63,360, year 1, 145,200, year 2, and 55,440, year 3

Solution

(a)Straight Line Method

Income Statement

Balance Sheet

Year

Depreciation Expense

Cost

Accumulated Depreciation

Book Value

At Acquisition

1

17,900

56,700

17,900

38,800

2

17,900

56,700

35,800

20,900

3

17,900

56,700

53,700

3,000

Depreciation = [ Cost – Residual Value ] / Useful Life

= [$56,700 – 3,000 ] / 3 Years

= $17,900 per year

(b)Units Production Method

Income Statement

Balance Sheet

Year

Depreciation Expense

Cost

Accumulated Depreciation

Book Value

At Acquisition

1

12,888

56,700

12,888

43,812

2

29,535

56,700

42,423

14,277

3

11,277

56,700

53,700

3,000

Depreciation

Year – 1= [56,700 – 3,000 ] x [ 63360 / 264000] = $12,888

Year – 2= [56,700 – 3,000 ] x [ 145200 / 264000] = $29,535

Year – 3= [56,700 – 3,000] x [ 55440 / 264000] = $11,277

(c)Double Declining Balance

Income Statement

Balance Sheet

Year

Depreciation Expense

Cost

Accumulated Depreciation

Book Value

At Acquisition

1

37,800

56,700

37,800

18,900

2

12,600

56,700

50,400

6,300

3

3,300

56,700

53,700

3,000

	Income Statement	Balance Sheet
Year	Depreciation Expense	Cost	Accumulated Depreciation	Book Value
At Acquisition
1	17,900	56,700	17,900	38,800
2	17,900	56,700	35,800	20,900
3	17,900	56,700	53,700	3,000