Payne Company purchased equipment on account on September 3, 2022, at an invoice price of $210,000. On September 4, 2022, it paid $4,400 for delivery of the equipment. A one-year, $1,975 insurance policy on the equipment was purchased on September 6, 2022. On September 20, 2022, Payne paid $5,600 for installation and testing of the equipment. The equipment was ready for use on October 1, 2022. 

Payne estimates that the equipment’s useful life will be four years, with a residual value of $15,000. It also estimates that, in terms of activity, the equipment’s useful life will be 82,000 units. Payne has a September 30 fiscal year end. Assume that actual usage is as follows:

 

Instructions 

a. Determine the cost of the equipment. 

b. Prepare depreciation schedules for the life of the asset under the following depreciation methods: 

1. Straight-line 

2. Double diminishing-balance, assuming a rate of 50% 

3. Units-of-production 

c. Which method would result in the highest profit for the year ended September 30, 2024? Over the life of the asset?

Transcribed Image Text:

# of Units 16,750 27,600 22,200 16,350 Year Ended September 30 2023 2024 2025 2026