Question

A Starbucks franchisee purchased a coffee drink machine on January 1, 2011, for $44,000.
	The expected useful life is ten years or 100,000 drinks. In 2010, 3,000 drinks were sold, and in
	2011, 14,000 drinks were sold. This volume of drinks were sold in each of the next several years at
	an equal amount each month. Residual value is $4,000. Prepare a depreciation table and record
	(journal entries) depreciation for 2012 under the following three depreciation methods:
	a. units-of-production
	b. double-declining balance
	c. straight-line

Answer 1

Solution a:

Cost of equipment = $44,000

Residual value = $4,000

Depreciable cost = $44,000 - $4,000 = $40,000

Useful life = 100000 drinks

Depreication per drink = $40,000 / 100000 = $0.40 per drink

Depreciation for 2012 = 14000 * $0.40 = $5,600

Solution b:

Depreciation rate - SLM = 1/10 = 10%

Depreciation rate - DDB = 10%*2 = 20%

Depreciation for 2011 = $44,000*20% = $8,800

Book value at the end of 2011 = $44,000 - $8,800 = $35,200

Depreciation for 2012 = $35,200 * 20% = $7,040

Solution c:

Depreciation for 2012 using SLM = $40,000/10 = $4,000