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Financial Statements Analysis Online Assignment Question #4 Home center Inc. a furniture whole seller acquired new...

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Financial Statements Analysis Online Assignment Question #4 Home center Inc. a furniture whole seller acquired new equipment
Financial Statements Analysis Online Assignment Question #4 Home center Inc. a furniture whole seller acquired new equipment at a cost of $150,000 at the beginning of the fiscal year. The equipment as an estimated life of five year and an estimated residual value of $12,000. President of Home center has requested information regarding alternative depreciation methods. Expected useful life of machine is 12,000 hours. Actual annual hourly operations of the machine is as below: Year Hours Used 2016 3600 Hours 2017 2800 Hours 2018 2200 Hours 2019 2000 Hours Required: a) Calculate yearly deprecation amount and the accumulated depreciation amount under the following methods; i) Straight line method ii) Reducing balance method iii) Double declining method iv) Units of activity method v) Sum of year digit method

Answers

i] Depreciation per year = (150000-12000)/5 = $           27,600
Year Beginning Book Value Depreciation for the Year Accumulated Depreciation Ending Book Value
1 $        1,50,000 $           27,600 $            27,600 $      1,22,400
2 $        1,22,400 $           27,600 $            55,200 $          94,800
3 $           94,800 $           27,600 $            82,800 $          67,200
4 $           67,200 $           27,600 $        1,10,400 $          39,600
5 $           39,600 $           27,600 $        1,38,000 $          12,000
Total $        1,38,000
ii] Rate = 1 - (Scrap / Cost of Machine)1/Years
= 1-(12000/150000)^(1/5) = 39.66%
Year Beginning Book Value Depreciation for the Year Accumulated Depreciation Ending Book Value
1 $        1,50,000 $           59,490 $            59,490 $          90,510
2 $           90,510 $           35,896 $            95,386 $          54,614
3 $           54,614 $           21,660 $        1,17,046 $          32,954
4 $           32,954 $           13,070 $        1,30,116 $          19,884
5 $           19,884 $              7,884 $        1,38,000 $          12,000
Total $        1,38,000
iii] Rate of depreciation = (100%/5)*2 = 40%.
Year Beginning Book Value Depreciation for the Year Accumulated Depreciation Ending Book Value
1 $        1,50,000 $           60,000 $            60,000 $          90,000
2 $           90,000 $           36,000 $            96,000 $          54,000
3 $           54,000 $           21,600 $        1,17,600 $          32,400
4 $           32,400 $           12,960 $        1,30,560 $          19,440
5 $           19,440 $              7,440 $        1,38,000 $          12,000
Total $        1,38,000
iv] Rate of depreciation per hour = (150000-12000)/12000 = $              11.50
Rounded off to $11.50 per unit.
The depreciation schedule will look as below:
Year Beginning Book Value Hours used Depreciation for the Year [Units produced * $11.50] Accumulated Depreciation Ending Book Value
1 $        1,50,000 $              3,600 $            41,400 $          41,400 $      1,08,600
2 $        1,08,600 $              2,800 $            32,200 $          73,600 $          76,400
3 $           76,400 $              2,200 $            25,300 $          98,900 $          51,100
4 $           51,100 $              2,000 $            23,000 $      1,21,900 $          28,100
5
Total 10600 $ 1,21,900.00
v] Year Beginning Book Value Depreciation Factor Depreciation for the Year Accumulated Depreciation Ending Book Value
1 $        1,50,000 33.33% $            46,000 $          46,000 $      1,04,000
2 $        1,04,000 26.67% $            36,800 $          82,800 $          67,200
3 $           67,200 20.00% $            27,600 $      1,10,400 $          39,600
4 $           39,600 13.33% $            18,400 $      1,28,800 $          21,200
5 $           21,200 6.67% $              9,200 $      1,38,000 $          12,000
Total $        1,38,000
Factor for 1st year = 5/15 = 33.33%
For 2nd year = 4/15 = 26.67%
15 = the sum of the digits of the years = 1+2+3+4+5 = 15
Depreciation = 138000*Factor.
.

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