Tolbert Company purchased equipment on January 1, 2017 for $60,000. It is estimated that the equipment will have a $5,000 residual value at the end of its 5-year useful life. It is also estimated that the equipment will produce 100,000 units over its 5-year life. 1. Calculate the amount of amortization expense for the year ended December 31, 2017, using the straight-line method of amortization. 2. If 16,000 units of product are produced in 2017 and 24,000 units are produced in 2018, what is the book value of the equipment at December 31, 2018? The company uses the units-of-activity amortization method. 3. If the company uses the double declining-balance method of amortization, what is the balance of the Accumulated Amortization—Equipment account at December 31, 2019?
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.
Tolbert Company purchased equipment on January 1, 2017 for $60,000. It is estimated that the equipment will have a $5,000 residual value at the end of its 5-year useful life. It is also estimated that the equipment will produce 100,000 units over its 5-year life.
1. Calculate the amount of amortization expense for the year ended December 31, 2017, using the straight-line method of amortization.
2. If 16,000 units of product are produced in 2017 and 24,000 units are produced in 2018, what is the book value of the equipment at December 31, 2018? The company uses the units-of-activity amortization method.
3. If the company uses the double declining-balance method of amortization, what is the balance of the Accumulated Amortization—Equipment account at December 31, 2019?
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