purchased factory equipment on January 1, 2017, for $65,000.
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.
Straight-Line and Units-of-Production Methods
Assume that Sample Company purchased factory equipment on January 1, 2017, for $65,000. The equipment has an estimated life of five years and an estimated residual value of $6,500. Sample's accountant is considering whether to use the straight-line or the units-of-production method to
Required:
1. Calculate the depreciation expense,
Straight-line method:
| Annual | Accumulated | Book | |
| Year | Depreciation | Depreciation | Value |
| 2017 | $fill in the blank 1 | $fill in the blank 2 | $fill in the blank 3 |
| 2018 | fill in the blank 4 | fill in the blank 5 | fill in the blank 6 |
| 2019 | fill in the blank 7 | fill in the blank 8 | fill in the blank 9 |
| 2020 | fill in the blank 10 | fill in the blank 11 | fill in the blank 12 |
| 2021 | fill in the blank 13 | fill in the blank 14 | fill in the blank 15 |
Units-of-production method:
| Annual | Accumulated | Book | |
| Year | Depreciation | Depreciation | Value |
| 2017 | $fill in the blank 16 | $fill in the blank 17 | $fill in the blank 18 |
| 2018 | fill in the blank 19 | fill in the blank 20 | fill in the blank 21 |
| 2019 | fill in the blank 22 | fill in the blank 23 | fill in the blank 24 |
| 2020 | fill in the blank 25 | fill in the blank 26 | fill in the blank 27 |
| 2021 | fill in the blank 28 | fill in the blank 29 | fill in the blank 30 |
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