Spacely Sprockets, Inc. invested $4,996,000 for new manufacturing equipment for its plant in Jetson, NY. The equipment was anticipated to have a useful life of 11 years, or 31,800 machine hours and a residual value of $496,000. In its first year in operation the equipment was used for 2,130 hours and an additional 2,990 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 1Year 2Net Sales$34,491,000$36,106,000COGS$22,202,000$22,388,000Gross Profit$12,289,000$13,718,000Operating Expenses(before adding in Depreciation)$7,663,000$8,113,000Income from Operations$4,626,000$5,605,000Income Tax Expense (at 30%)$1,387,800$1,681,500Net Income$3,238,200$3,923,500 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.(CostYear Depreciation per unit X Number of hours used = Total DepreciationYear 1XYear 2Spacely Sprockets, Inc.Net SalesResidual Value) / Number of Units = Depreciation per unitCOGS2. Recalculate the Income Statement for Year 1 and Year 2 including the Depreciation Expense as part ofthe Operating Expenses.Gross ProfitOperating Expenses(before adding in Depreciation)Income from OperationsIncome Tax Expense (at 30%)Net IncomeX=Year 1=Year 2

Unit of production depreciation calculates depreciation based on the unit of production and ignores…

Answered: Spacely Sprockets, Inc. invested…

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 $4,996,000 for new manufacturing equipment for its plant in Jetson, NY. The equipment was anticipated to have a useful life of 11 years, or 31,800 machine hours and a residual value of $496,000. In its first year in operation the equipment was used for 2,130 hours and an additional 2,990 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	$34,491,000	$36,106,000
COGS	$22,202,000	$22,388,000
Gross Profit	$12,289,000	$13,718,000
Operating Expenses (before adding in Depreciation)	$7,663,000	$8,113,000
Income from Operations	$4,626,000	$5,605,000
Income Tax Expense (at 30%)	$1,387,800	$1,681,500
Net Income	$3,238,200	$3,923,500

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
Year Depreciation per unit X Number of hours used = Total Depreciation
Year 1
X
Year 2
Spacely Sprockets, Inc.
Net Sales
Residual Value) / Number of Units = Depreciation per unit
COGS
2. Recalculate the Income Statement for Year 1 and Year 2 including the Depreciation Expense as part of
the Operating Expenses.
Gross Profit
Operating Expenses
(before adding in Depreciation)
Income from Operations
Income Tax Expense (at 30%)
Net Income
X
=
Year 1
=
Year 2

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