Question

Nicole’s Getaway Spa (NGS) purchased a hydrotherapy tub system to add to the wellness programs at NGS. The machine was purchased at the beginning of the year at a cost of $ 7,000. The estimated useful life was five years and the residual value was $ 500. Assume that the estimated productive life of the machine is 13,000 hours. Expected annual production was year 1, 3,100 hours; year 2, 2,500 hours; year 3, 3,400 hours; year 4, 2,200 hours; and year 5, 1,800 hours.
Required:
1. Complete a depreciation schedule for each of the alternative methods.
a. Straight- line.
b. Units- of- production.
c. Double- declining- balance.
2. Assume NGS sold the hydrotherapy tub system for $ 2,100 at the end of year 3. Pre-pare the journal entry to account for the disposal of this asset under the three different methods.
3. The following amounts were forecast for year 3: Sales Revenues $ 42,000; Cost of Goods Sold $ 33,000; Other Operating Expenses $ 4,000; and Interest Expense $ 800. Create an income statement for year 3 for each of the different depreciation methods, ending at Income before Income Tax Expense. (Don’t forget to include a loss or gain on disposal for each method.)


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  • CreatedNovember 02, 2015
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