Concept explainers
LO 3
(Learning Objective 3: Compute
1. Compute Northeast’s depreciation for the first two years on the plane using the following methods:
a. Straight-line method
b. Units-of-production method (round depreciation per mile to the closest cent)
c. Double-declining-balance method
2. Show the airplane’s book value at the end of the first year under each depreciation method.
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Financial Accounting (12th Edition) (What's New in Accounting)
- Montello Inc. purchases a delivery truck for $25,000. The truck has a salvage value of $6,000 and is expected to be driven for 125,000 miles. Montello uses the units-of-production depreciation method, and in year one the company expects the truck to be driven for 26,000 miles; in year two, 30,000 miles; and in year three, 40,000 miles. Consider how the purchase of the truck will impact Montellos depreciation expense each year and what the trucks book value will be each year after depreciation expense is recorded.arrow_forwardMontello Inc. purchases a delivery truck for $15,000. The truck has a salvage value of $3,000 and is expected to be driven for 120,000 miles. Montello uses the units-of-production depreciation method and in year one it expects to use the truck for 23,000 miles. Calculate the annual depreciation expense.arrow_forward(Learning Objective 3: Compute partial year depreciation, and select the best depreciation method) Assume that on September 30, 2020, EuroAir, an international airline based in Germany, purchased a Jumbo aircraft at a cost of €45,000,000 (€ is the symbol for the euro). EuroAir expects the plane to remain useful for four years (4,000,000 miles) and to have a residual value of €6,000,000. EuroAir will fly the plane 350,000 miles during the remainder of 2020. Compute EuroAir's depreciation on the plane for the year ended December 31, 2020, using the following methods: a. Straight-line b. Units-of-production c. Double-declining-balance Which method would produce the highest net income for 2020? Which method produces the lowest net income? Iarrow_forward
- (Learning Objectives 3, 4: Compute depreciation; record a gain or loss on disposal)On January 1, 2017, Lincoln Manufacturing purchased a machine for $930,000. The companyexpected the machine to remain useful for eight years and to have a residual value of $110,000.Lincoln Manufacturing uses the straight-line method to depreciate its machinery. LincolnManufacturing used the machine for four years and sold it on January 1, 2021, for $250,000.1. Compute accumulated depreciation on the machine at January 1, 2021 (same as December 31,2020).2. Record the sale of the machine on January 1, 2021.arrow_forward(Learning Objectives 3, 4: Compute depreciation; record a gain or loss on disposal)On January 1, 2017, Stockton Manufacturing purchased a machine for $910,000. The companyexpected the machine to remain useful for eight years and to have a residual value of $80,000.Stockton Manufacturing uses the straight-line method to depreciate its machinery. StocktonManufacturing used the machine for four years and sold it on January 1, 2021, for $350,000.1. Compute accumulated depreciation on the machine at January 1, 2021 (same as December 31,2020).2. Record the sale of the machine on January 1, 2021arrow_forward(Learning Objectives 3, 4: Compute depreciation; record a gain or loss on disposal)On January 1, 2017, Worldwide Manufacturing purchased a machine for $810,000 that itexpected to have a useful life of four years. The company estimated that the residual value ofthe machine was $50,000. Worldwide Manufacturing used the machine for two years and soldit on January 1, 2019, for $350,000. As of December 31, 2018, the accumulated depreciation onthe machine was $380,000.1. Calculate the gain or loss on the sale of the machinery.2. Record the sale of the machine on January 1, 2019.arrow_forward
- ! Required information [The following information applies to the questions displayed below.] NewTech purchases computer equipment for $264,000 to use in operating activities for the next four years. It estimates the equipment's salvage value at $28,000. Prepare a table showing depreciation and book value for each of the four years assuming straight-line depreciation. Year Year 1 Year 2 Year 3 Year 4 Total Choose Numerator: Annual Depreciation Straight-Line Depreciation 1 1 Choose Denominator: Year-End Book Value = = Annual Depreciation Expense Depreciation expensearrow_forwardE10-20 Computing depreciation three methods Learning Objective 2 1. Double-declining-balance, 12/31/17, Exp. $5,250 (Requirement 1 only) Crackling Fried Chicken bought equipment on January 2, 2016, for $21,000. The equipment was expected to remain in service for four years and to perform 3,600 fry jobs. At the end of the equipment's useful life, Crackling's estimates that its residual value will be $3,000. The equipment performed 360 jobs the first year, 1,080 the second year, 1,440 the third, and 720 the fourth year. Requirements 1. Prepare a schedule of depreciation expense, accumulated depreciation, and book value per year for the equipment under the three depreciation methods. Show your computations. Note: Three depreciation schedules must be prepared. 2. Which method tracks the wear and tear on the equipment most closely?arrow_forward(Learning Objective 3: Change a plant asset’s useful life) Chester Consultantspurchased a building for $430,000 and depreciated it on a straight-line basis over 40 years. Theestimated residual value was $70,000. After using the building for 20 years, Chester realizedthat the building would remain useful only 14 more years. Starting with the 21st year, Chesterbegan depreciating the building over the newly revised total life of 34 years and decreasedthe estimated residual value to $12,980. Record depreciation expense on the building foryears 20 and 21.arrow_forward
- Required information Use the following information for the Exercises below. (Algo) [The following information applies to the questions displayed below.] NewTech purchases computer equipment for $261,000 to use in operating activities for the next four years. It estimates the equipment's salvage value at $30,000. Exercise 8-7 (Algo) Straight-line depreciation LO P1 Prepare a table showing depreciation and book value for each of the four years assuming straight-line depreciation. Choose Numerator: Year Year 1 Year 2 Year 3 Year 4 Total Straight-Line Depreciation Choose Denominator: Annual Depreciation = = Annual Depreciation Expense Depreciation expense Year-End Book Valuearrow_forward25. Depreciation Methods On January 1, 2021, Loeffler Company acquired a machine at a cost of $200,000. Loeffler estimates that it will use the machine for four years or 8,000 machine-hours. It estimates that after four years the machine can be sold for $20,000. Loeffler uses the machine for 2,100 and 1,800 machine-hours in 2021 and 2022, respectively. Required: Compute depreciation expense for 2021 and 2022 using the: 1. Straight-line method of depreciation. 2. Double declining balance method of depreciation. 3. Units-of-production method of depreciation.arrow_forward(Learning Objective 3: Determine depreciation amounts by three methods) PresleyPizza bought a used Ford delivery van on January 2, 2018, for $22,000. The van was expected toremain in service for four years (80,000 miles). At the end of its useful life, Presley managementestimated that the van’s residual value would be $2,000. The van traveled 32,000 miles the firstyear, 28,000 miles the second year, 15,000 miles the third year, and 5,000 miles in the fourth year.Requirements1. Prepare a schedule of depreciation expense per year for the van under the threedepreciation methods discussed in this chapter. (For units-of-production and doubledeclining-balance methods, round to the nearest two decimal places after each step of thecalculation.)2. Which method best tracks the wear and tear on the van?3. Which method would Presley prefer to use for income tax purposes? Explain yourreasoning in detail.arrow_forward
- Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College