Pharoah Limited purchased equipment on February 1, 2024, at a cost of $160,790. As the CFO of the company, you are considering the merits of using the diminishing-balance or units-of-production method of depreciation instead of the straight-line method, which is currently being used for other equipment. The new equipment has an estimated residual value of $10,000 and an estimated useful life of either five years or 88,700 units. Demand for the products produced by the equipment is sporadic so the equipment will be used more in some years than in others. Assume the equipment produces the following numbers of units each year: 15,000 units in 2024; 26,000 units in 2025; 20,000 units in 2026; 15,000 units in 2027; 12,000 units in 2028; and 700 units in 2029. Pharoah has a December 31 year end.

Pharoah Limited purchased equipment on February 1, 2024, at a cost of $160,790. As the CFO of the company, you are considering the merits of using the diminishing-balance or units-of-production method of depreciation instead of the straight-line method, which is currently being used for other equipment. The new equipment has an estimated residual value of $10,000 and an estimated useful life of either five years or 88,700 units. Demand for the products produced by the equipment is sporadic so the equipment will be used more in some years than in others. Assume the equipment produces the following numbers of units each year: 15,000 units in 2024; 26,000 units in 2025; 20,000 units in 2026; 15,000 units in 2027; 12,000 units in 2028; and 700 units in 2029. Pharoah has a December 31 year end.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter11: Depreciation, Depletion, Impairment, And Disposal

Section: Chapter Questions

Problem 7E: Loban Company purchased four cars for 9,000 each and expects that they will be sold in 3 years for...

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