ACE Inc. purchased equipment on September 1, 2017 for $66,000. It is estimated that the equipment will have a $3,000 residual value at the end of its 4-year useful life. It is also estimated that the equipment will produce 140,000 units over its life. The equipment was used to produce 14,000 units in 2017, 35,000 units in 2018, 38,000 in 2019, and 36,000 in 2020. Then on January 1, 2021 the equipment had a major malfunction and was no longer operational. ACE Inc. sold the equipment to a scrap metal facility for $2,000. Required: (Consider each of the following questions as individual and separate from one another.) (a) Assuming the units-of-production depreciation method is used, calculate the depreciation expense for the year ended December 31, 2019 and record the entry in proper format. (b) Assuming ACE Inc. uses double diminishing-balance depreciation, what is the carrying value (book value) of the equipment at the year-end of December 31, 2017? (c) Assuming ACE Inc. uses the straight-line depreciation method, record the disposal on January 1, 2021.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
3. ACE Inc. purchased equipment on September 1, 2017 for $66,000. It is estimated that the equipment will have a $3,000 residual value at the end of its 4-year useful life. It is also estimated that the equipment will produce 140,000 units over its life. The equipment was used to produce 14,000 units in 2017, 35,000 units in 2018, 38,000 in 2019, and 36,000 in 2020. Then on January 1, 2021 the equipment had a major malfunction and was no longer operational. ACE Inc. sold the equipment to a scrap metal facility for $2,000.
Required: (Consider each of the following questions as individual and separate from one another.)
(a) Assuming the
(b) Assuming ACE Inc. uses double diminishing-balance depreciation, what is the carrying value (book value) of the equipment at the year-end of December 31, 2017?
(c) Assuming ACE Inc. uses the
Step by step
Solved in 2 steps with 1 images
