Spacely Sprockets, Inc. invested $4,995,000 for new manufacturing equipment for its plant in Jetson, NY. The equipment was anticipated to have a useful life of 11 years, or 29,800 machine hours and a residual value of $507,000. In its first year in operation the equipment was used for 2,180 hours and an additional 2,700 hours in its second year of usage. The Income Statement for years 1 and 2 of Spacely Sprockets, Inc. are shown below. All items rounded to nearest whole dollar. Spacely Sprockets, Inc. Year 1 Year 2 Net Sales $35,590,000 $36,164,000 COGS $23,120,000 $22,978,000 Gross Profit $12,470,000 $13,186,000 Operating Expenses (before adding in Depreciation) $7,650,000 $8,152,000 Income from Operations $4,820,000 $5,034,000 Income Tax Expense (at 30%) $1,446,000 $1,510,200 Net Income $3,374,000 $3,523,800 Round all items to the nearest whole dollar and use rounded values for all future calculations. 1. Calculate the depreciation expense for year 1 and 2 using the Units of Production method. (Cost - Residual Value) / Number of Units = Depreciation per unit - / = Year Depreciation per unit X Number of hours used = Total Depreciation Year 1 X = Year 2 X = 2. Recalculate the Income Statement for Year 1 and Year 2 including the Depreciation Expense as part of the Operating Expenses. Spacely Sprockets, Inc. Year 1 Year 2 Net Sales COGS Gross Profit Operating Expenses (before adding in Depreciation) Income from Operations Income Tax Expense (at 30%) Net Income

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Spacely Sprockets, Inc. invested $4,995,000 for new manufacturing equipment for its plant in Jetson, NY. The equipment was anticipated to have a useful life of 11 years, or 29,800 machine hours and a residual value of $507,000. In its first year in operation the equipment was used for 2,180 hours and an additional 2,700 hours in its second year of usage.

The Income Statement for years 1 and 2 of Spacely Sprockets, Inc. are shown below.

All items rounded to nearest whole dollar.

Spacely Sprockets, Inc.	Year 1	Year 2
Net Sales	$35,590,000	$36,164,000
COGS	$23,120,000	$22,978,000
Gross Profit	$12,470,000	$13,186,000
Operating Expenses (before adding in Depreciation)	$7,650,000	$8,152,000
Income from Operations	$4,820,000	$5,034,000
Income Tax Expense (at 30%)	$1,446,000	$1,510,200
Net Income	$3,374,000	$3,523,800

Round all items to the nearest whole dollar and use rounded values for all future calculations.

1. Calculate the depreciation expense for year 1 and 2 using the Units of Production method.

(Cost	-	Residual Value)	/	Number of Units	=	Depreciation per unit
	-		/		=

Year	Depreciation per unit	X	Number of hours used	=	Total Depreciation
Year 1		X		=
Year 2		X		=

2. Recalculate the Income Statement for Year 1 and Year 2 including the Depreciation Expense as part of the Operating Expenses.

Spacely Sprockets, Inc.	Year 1	Year 2
Net Sales
COGS
Gross Profit
Operating Expenses (before adding in Depreciation)
Income from Operations
Income Tax Expense (at 30%)
Net Income

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