Question: Mace Company acquired equipment with compo nents that are not significant

Mace Company acquired equipment with compo-nents that are not significant and cost $ 36,000, which will be depreciated on the assumption that they will last six years and have a $ 2,400 residual value. Several possible methods of amortization are under consideration.

1. Prepare a schedule that shows annual amortization expense for the first two years, assuming the following (show computations and round to the nearest dollar):
a. Declining- balance method, using a rate of 30%.
b. Productive- output method. Estimated output is a total of 210,000 units, of which 24,000 will be produced the first year; 36,000 in each of the next two years; 30,000 the fourth year; and 42,000 the fifth and sixth years.
c. Straight- line method.
2. Repeat your calculations for requirement (1), assuming a useful life of 10 years, and a DB rate of 20% that reflects the longer life, but the same number of units of production. The residual value is unchanged. What conclusion can you reach by comparing the results of (1) and (2)?
3. What criteria would you consider important in selecting a depreciation method?

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  • CreatedFebruary 17, 2015
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