Question Help General Medical Center bought equipment on Jan

Question Help General Medical Center bought equipment on January 2 for $27,000. The equipment was expected to nemain in service for four years and to perfom 800 operations Atthe endofthe eqipment\'s useful life, General estimatestatts residual wg be $3.000 The eopment performed80operatosthe first y6 240 the seco year, 320 the third year, and 180 the fourth year Read the reauirements MyLal Requirement 1. Prepare a schedule of depreciation expense per year for the equipment under the three depreciation methods. After two years under double-decining balance depreciation, the company switched to the straightHline method 0 Main Units ofDouble-Declining Enter any number in the edit fields and then continue to the next question PowerPoint Chacter 10 20 3 5 commandoption option command

Solution

Straight Line

A

Cost

$            27,000.00

B

Residual Value

$              3,000.00

C=A - B

Depreciable base

$            24,000.00

D

Life [in years]

4

E=C/D

Annual SLM depreciation

$              6,000.00

Year

Book Value

Depreciation expense

Ending Book Value

Accumulated Depreciation

1

$                             27,000.00

$              6,000.00

$                             21,000.00

$         6,000.00

2

$                             21,000.00

$             6,000.00

$                             15,000.00

$       12,000.00

3

$                             15,000.00

$              6,000.00

$                                9,000.00

$       18,000.00

4

$                                9,000.00

$              6,000.00

$                                3,000.00

$       24,000.00

Units Of Production

A

Cost

$            27,000.00

B

Residual Value

$              3,000.00

C=A - B

Depreciable base

$            24,000.00

D

Production

800

E

Depreciation per Unit

30

Year

Book Value

Production

Depreciation expense

Ending Book Value

Accumulated Depreciation

1

$                             27,000.00

80

$                                2,400.00

$       24,600.00

$                                   2,400.00

2

$                             24,600.00

240

$                                7,200.00

$       17,400.00

$                                   9,600.00

3

$                             17,400.00

320

$                                9,600.00

$         7,800.00

$                                 19,200.00

4

$                                7,800.00

160

$                                4,800.00

$         3,000.00

$                                 24,000.00

Double Declining Method

A

Cost

$            27,000.00

B

Residual Value

$              3,000.00

C=A - B

Depreciable base

$            24,000.00

D

Life [in years]

4

E=C/D

Annual SLM depreciation

$              6,000.00

F=E/C

SLM Rate

25.00%

G=F x 2

DDB Rate

50.00%

Change of depreciation method to Straight Line

Straight Line

A

WDV

$              6,750.00

B

Residual Value

$              3,000.00

C=A - B

Depreciable base

$              3,750.00

D

Life [in years]

2

E=C/D

Annual SLM depreciation

$              1,875.00

Year

Beginning Book Value

Depreciation rate

Depreciation expense

Ending Book Value

Accumulated Depreciation

1

$                             27,000.00

50.00%

13500

$       13,500.00

13500

2

$                             13,500.00

50.00%

6750

$         6,750.00

20250

Change in Method to Straight Line

3

$                                6,750.00

1875

$         4,875.00

22125

4

$                                4,875.00

1875

$         3,000.00

24000

Part 1

Schedule of Depreciation

Year

Straight Line

Units of Production

Double Declining Method

1

6000

2400

13500

2

6000

7200

6750

3

6000

9600

1875

4

6000

4800

1875

Part 2

Units of Production method most closely track the wear and tear of the equipment.

Part 3

Double declining method should be preferred for Income tax Purposes.

Double declining method gives highest amount of depreciation in the first year that means it gives highest amount of expenses to be recorded in income statement. High expense will reduce profits and ultimately final liability of tax will be less in comparison to other alternatives such as Straight line and Units of Production method.

Straight Line
A	Cost	$            27,000.00
B	Residual Value	$              3,000.00
C=A - B	Depreciable base	$            24,000.00
D	Life [in years]	4
E=C/D	Annual SLM depreciation	$              6,000.00