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Chapter 9 - Practice Problems

Problem #1

Straight Line Depreciation Method:

On January 3, ABC Company purchased equipment for $325,000. The equipment has an estimated useful life of 15 years and a residual value of $12,500.

1. Determine the depreciable cost
2. Prepare the journal entry to record the depreciation at year end.

Problem #2

Units of Output Depreciation Method

On January 4, ABC Company purchased film production equipment at a cost of $900,000. The equipment has no residual value and a useful life of 400,000 hours. For the first year, the company used the equipment for 150,000 hours.

1. Determine the depreciable cost
2. Prepare the journal entry to record the depreciation at year end.

Problem #3

Double Declining Balance Depreciation Method

On January 5, ABC Company purchased equipment at a cost of $700,000. The equipment has a residual value of $200,000 and a useful life of 8 years.

1. Determine the depreciable cost
2. Prepare the journal entry to record the depreciation at year end.

Answer 1

1a) Depreciable cost = 325000-12500 = 312500

1b) Journal entry

No	General Journal	Debit	Credit
	Depreciation expense (312500/15)	20833
	Accumulated depreciation-equipment		20833

2a) Depreciable cost = 900000-0 = 900000

2b) Journal entry

No	General Journal	Debit	Credit
	Depreciation expense (900000/400000*150000)	337500
	Accumulated depreciation-equipment		337500

3a) Depreciable cost = 700000-200000 = 500000

3b) Journal entry

No	General Journal	Debit	Credit
	Depreciation expense (700000*25%	175000
	Accumulated depreciation-equipment		175000