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On April 22, 2020, Sandstone Enterprises purchased equipment for $129,200. The company expects to use the equipment

Question:

On April 22, 2020, Sandstone Enterprises purchased equipment for $129,200. The company expects to use the equipment for 12,000 working hours during its four-year life and that it will have a residual value of $14,000. Sandstone has a December 31 year end and pro-rates depreciation to the nearest month. The actual machine usage was: 1,900 hours in 2020; 2,800 hours in 2021; 3,700 hours in 2022; 2,700 hours in 2023; and 1,100 hours in 2024.


Instructions

a. Prepare a depreciation schedule for the life of the asset under each of the following methods:

1. straight-line,

2. double diminishing-balance, and

3. units-of-production.

b. Which method results in the lowest profi t over the life of the asset?

c. Which method results in the least cash used for depreciation over the life of the asset?

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a 1 Straightline 1 129200 14000 115200 2 Straightline rate 100 4 years 25 2 Double diminishingbalanc...View the full answer


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Accounting Principles Volume 1

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Authors: Jerry J. Weygandt, Donald E. Kieso, Paul D. Kimmel, Barbara Trenholm, Valerie Warren, Lori Novak

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Related Video

Depreciation of non-current assets is the process of allocating the cost of the asset over its useful life. The cost of the asset includes the purchase price, any additional costs incurred to bring the asset to its current condition and location, and any other costs that are directly attributable to the asset. The useful life of the asset is the period over which the asset is expected to be used by the company. To calculate the depreciation, companies use different methods such as straight-line, declining-balance, sum-of-the-years\'-digits, units-of-production, and group depreciation. The chosen method will depend on the type of asset, the company\'s accounting policies, and the accounting standards that are applicable. The straight-line method allocates an equal amount of the asset\'s cost over its useful life, while the declining-balance method calculates depreciation at a fixed rate, typically double the straight-line rate, but the amount of depreciation decreases over time. The sum-of-the-years\'-digits method is similar to the declining-balance method, but the rate of depreciation is calculated using a fraction that is based on the useful life of the asset. It\'s important to note that the depreciation expense will be recorded on the company\'s income statement and the accumulated depreciation will be recorded on the company\'s balance sheet. This will decrease the value of the asset on the balance sheet over time.

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