Problem 7 5a algo determine depreciation under three methods...

Problem 7-5A (Algo) Determine depreciation under three methods (LO7-4) University Car Wash purchased new soap dispensing equipment that cost $240,000 including installation. The company estimates that the equipment will have a residual value of $30,000. University Car Wash also estimates it will use the machine for six years or about 12,000 total hours. Actual use per year was as follows: Year Hours Used 1 2,600 2 2,100 3 2,200 4 1,800 5 1,600 6 1,700 Problem 7-5A (Algo) Part 2 2. Prepare a depreciation schedule for six years using the double-declining-balance method. (Do not round your intermediate calculations.) UNIVERSITY CAR WASH Depreciation Schedule-Double-Declining-Balance End of Year Amounts Year Depreciation Expense Accumulated Depreciation Book Value 1 $ 80,000 $ 80,000 $ 160,000 2 53,333 133,333 106,667 3 35,556 168,889 71,111 4 23,703 192,592 47,408 5 17,408 210,000 30,000 6 210,000 30,000 Total $ 210,000

Transcript

00:01 In the given portion for university car wash, we need to prepare depreciation schedule for the six years using activity -based method.

00:11 Now, what we will be doing first of all is we will be calculating the depreciation expense rate.

00:16 So the first calculation that we will be doing is depreciation expense rate.

00:27 So the depreciation method is given to be activity -based.

00:31 So using activity based method, we will be calculating the depreciation rate.

00:40 So this can be calculated by using the formula that is the cost less the residual value divided by the estimated production activity.

01:02 Now in the question, it is given that the university car wash has bought a machine that cost them $228 ,000.

01:12 Including the installation cost.

01:15 So therefore the cost of machine is going to be $228 ,000 and the residual value is given to be $24 ,000.

01:26 So this is the residual value.

01:28 So this will be subtracted from the cost and divided by the estimated production activity.

01:35 And that is given to be in six years, the machine will have 12 ,000 hours of activity.

01:42 So the total estimated activity is going to be 12 ,000 hours.

01:48 Now if we solve this we are going to get $17 per hour as our depreciation expense rate.

01:57 Now once we have calculated this depreciation expense rate, now what we will be doing? we will be preparing the depreciation schedule for the six year.

02:06 So this is the depreciation schedule where we had year column opening book value.

02:18 Depreciation expense, accumulated depreciation expense and ending book value.

02:24 First of all at year 1 the opening book value of the machine was of $228 ,000 and now with these balance we have to calculate the depreciation expense so in the working we will be calculating the depreciation expense and this is going to be actual our used times the depreciation expense per hour.

03:08 So for year one, the depreciation expense is going to be, the actual hour used in year one is given to be 3 ,000 hours and the depreciation expense rate is $17 per hour.

03:21 Therefore, the depreciation expense for the year one comes to $51 ,000.

03:28 So we will put this value in the depreciation expense, that is $51 ,000.

03:35 So all these values are in dollars.

03:38 So we will write values in dollars.

03:46 Now the accumulated depreciation is going to remain same as depreciation expense for year 1.

03:51 So finally for ending book value, this is going to be opening book value less the depreciation expense.

03:57 That is a minus b and that comes to $177 ,000 as the opening, sorry, ending book value.

04:07 Now similarly for year 2 we will be calculating the depreciation.

04:11 So for year to the opening book value is going to be $177 ,000 and the depreciation expense for year two is going to be the actual hour used of the machine is 1700 hours...

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