Question

16-On January 1, 2021, Hobart Mfg. Co. purchased a drill press at a cost of $36,000. The drill press is expected to last 10 years and has a residual value of $6,000. During its 10-year life, the equipment is expected to produce 500,000 units of product. In 2021 and 2022, 25,000 and 84,000 units, respectively, were produced.

Required:
Compute depreciation for 2021 and 2022 and the book value of the drill press at December 31, 2021 and December 31, 2022, assuming the straight-line method is used.

  

Answer 1

Answer:

Compute depreciation for 2021 and 2022 and the book value of the drill press at December 31, 2021, and December 31, 2022, is as follows:

Particulars	Amount
Depreciation for 2021	$3,000
Book Value of drill press as of December 31, 2021:
Book value of drill press on January 1, 2021	$36,000
Less: Depreciation for the year 2021	$3,000
Book value of drill press as of December 31, 2021	$33,000
Depreciation for 2022	$3,000
Book Value of drill press as of December 31, 2022:
Book value of drill press on January 1, 2022	$33,000
Less: Depreciation for the year 2022	$3,000
Book value of drill press as of December 31, 2021	$30,000

Working Notes:

1. Calculate annual depreciation using straight-line depreciation as follows:

Annual depreciation = (Cost of assets - Salvage value) / Useful life of assets

= ($36,000 - $6,000) / 10 years

= $3,000 per annuam.