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3131 CHAPTER 11 EXAMPLES



Example 1 – Agazzi Company purchased equipment for $304,000 on October 1, 2010. It is estimated that the equipment will have a useful life of 8 years and a salvage value of $16,000. Estimated production is 40,000 units and estimated working hours are 20,000. During 2010, the equipment produces 1,000 units.

Compute depreciation expense under each of the following methods. Agazzi is on a calendar-year basis ending December 31.

  a. Straight-line method for 2010.

  b. Activity method (units of output) for 2010.

  c. Sum-of-the-years’-digits method for 2012.

  d. Double-declining-balance method for 2011.

















































Example 1 (solutions)

|(a)         |2010         |Straight-line                 |$304,000 – $16,000                       |= $36,000/year                                       |
|           |             |                             |8                                         |                                                     |
|           |             |                                                                                                                             |
|           |             |3 months—Depreciation ($36,000 X 3/12) = $9,000                                                                             |
|(b)         |2010         |Output                       |$304,000 – $16,000                       |= $7.20/output unit                                   |
|           |             |                             |40,000                                   |                                                     |
|           |             |1,000 units X $7.20 = $7,200                                           |
|(c)         |8 + 7 + 6 + 5 + 4 + 3 + 2 + 1 = 36 (total sum of the years’ digits)                                           |
|           |...

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