Concept explainers
E11-17. Depreciation Methods. Ace Manufacturing, Inc. purchased a new piece of manufacturing equipment at a total acquisition cost of $3,000,000 on January 4 of the current year. The firm estimates that the equipment has a useful life of 10 years or 13,250,000 units of output and a residual value of $350,000 at the end of its useful life. The following schedule indicates the actual number of units output with the machine per year:
Year | Units of Output | Year | Units of Output |
1 | 1,600,000 | 6 | 1,300,000 |
2 | 1,600,000 | 7 | 1,200,000 |
3 | 1,500,000 | 8 | 1,200,000 |
4 | 1,500,000 | 9 | 1,100,000 |
5 | 1,300,000 | 10 | 1,100,000 |
Required
Prepare the depreciation schedules for the manufacturing equipment assuming that Ace used the following methods (each case is independent):
- a. Straight-line method.
- b. Units-of-output method.
- c. Double-declining balance method (Reduce the depreciation expense in the last year to the necessary amount to arrive at an ending book value equal to the scrap value.)
- d. Ace sells the manufacturing equipment at the end of Year 5 for $1,465,000. What is the gain or loss on sale under each of the depreciation methods in parts (a)–(c)?
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Intermediate Accounting
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