Question

Leo Company purchased equipment on January 1, 2014 for $90,000.

It is estimated that the equipment will have a $5,000 salvage 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.

Answer Questions below:

1. Compute the amount of depreciation expense for the year ended December 31, 2014, using the straight-line method of depreciation.

2. If 16,000 units of product are produced in 2014 and 24,000 usnits are produced in 2015, what is the book value of the equipment at December 31, 2015?

The company uses the units-of-activity depreciation method.

Answer 1

1st part:

depreciation expensse for year ended december 31, 2014 using the straight line method of depreciation:

=> (cost - salvage value) / life in years

=> (90,000 - 5,000) / 5 years

=>$17,000.

using straight line method , the depreciation for the year ended december 31 2014 = $17,000.

2.depreciable value = cost - salvage value =>$90,000 - 5,000 => $85,000.

depreciation = depreciable value * (units produced during the year) / total units capacity

initial book value	$90,000
less: depreciation of 2014 (85,000* 16,000 / 100,000)	(13,600)
less: depreciation of 2015 (85,000*24,000/100,000)	(20,400)
book value of equipment at december 31 2015	$56,000