Plum Coatings Company purchased waterproofing equipment on January 2, 2011, for $450,000. The equipment was expected to have a useful life of four years, or 10,000 operating hours, and a residual value of $50,000. The equipment was used for 3,000
Instructions
1. Determine the amount of depreciation expense for the years ended December 31, 2011, 2012, 2013, and 2014, by
(a) The straight-line method,
(b) The units-of-production method, and
(c) The double-declining-balance method. Also determine the total depreciation expense for the four years by each method. The following columnar headings are suggested for recording the depreciation expense amounts:
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2. What method yields the highest depreciation expense for 2011?
3. What method yields the most depreciation over the four-year life of theequipment?
Straight Line Method Units-of- Production Method Double-Declining Balance Method Year
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Related Video
In accounting terms, depreciation is defined as the reduction of the recorded cost of a fixed asset in a systematic manner until the value of the asset becomes zero or negligible. An example of fixed assets are buildings, furniture, office equipment, machinery, etc. The land is the only exception that cannot be depreciated as the value of land appreciates with time. Depreciation allows a portion of the cost of a fixed asset to be the revenue generated by the fixed asset. This is mandatory under the matching principle as revenues are recorded with their associated expenses in the accounting period when the asset is in use. This helps in getting a complete picture of the revenue
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